Ontario Securities Commission v. Paramount Equity Financial Corporation, 2022 ONSC 6516
COURT FILE NO.: CV-17-00011818-00CL
DATE: 2022-11-21
SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)
RE: ONTARIO SECURITIES COMMISSION, Applicant
AND:
PARAMOUNT EQUITY FINANCIAL CORPORATION, et al, Respondent
BEFORE: Kimmel J.
COUNSEL: Gavin Tighe, Agent for the Receiver, Grant Thornton Limited, Moving Party/Responding Party on cross-motion Jordan Schultz, for the Receiver, Grant Thornton Limited Gregory Roberts, for Clayton Family Lands Ltd. and Silver Horse Developments Ltd. c.o.b. as Trail Bay Estates, Responding Parties (Moving Parties by cross-motion)
HEARD: October 31, 2022
ENDORSEMENT (Trail Bay Estates limitations issue)
Procedural Background to this Motion
[1] Grant Thornton Limited was appointed receiver (the “Receiver”) of each of the named respondents (collectively, the “Paramount Group”) by order of this court dated August 2, 2017 (the “Appointment Order”).
[2] The Receiver has brought a motion currently returnable in January 2023 (the “Receiver’s Motion”). The Receiver’s Motion seeks declaratory relief in respect of the amounts claimed to be due and payable under a loan advanced pursuant to a funding commitment letter agreement dated January 6, 2016 (the “Paramount Funding Commitment” or the “Loan”). The Loan was made by one of the companies in the Paramount Group, Paramount Equity Financial Corporation (“PEFC” or the “Lender”) to Clayton Family Lands Ltd. (the “Sechelt Owner”) and Silver Horse Developments Ltd. (“Silver Horse”). The Sechelt Owner and Silver Horse operated together as Trail Bay Estates (together, the “Borrowers” or “TBE”).
[3] The Borrowers have brought a cross-motion for declarations relating to their obligations to repay the Loan and relating to the security granted in respect of the Loan (the “Security”). The Borrower’s contend that they are entitled to a discharge and release, or cancellation, of the Security.[^1] The Security at issue is a mortgage registered on April 1, 2016 as instrument number CA5082776 over certain lands owned by the Sechelt Owner (the “Mortgage”) and a general security agreement (“GSA”) with registration no. 191873J pertaining to TBE. The Borrowers contend that they are entitled to a discharge and release or cancellation of the Security either because:
a. the applicable limitation period under the Limitation Act, S.B.C. 2012, c. 13 (the “BC Limitation Act”) expired prior to the commencement of any proceedings by the Receiver in respect of the Borrowers’ alleged defaults under the Loan and the Mortgage (hereinafter referred to as the “Limitations Issue”);
or, if the Receiver’s Motion is not statute barred;
b. they satisfied their obligations under the Loan and the Mortgage on April 26, 2018 by assigning to TBE a promissory note in the amount of $916,512.50 signed by 250942 Ontario Ltd. on April 4, (the “Promissory Note”); and/or
c. they were relieved of their obligations under the Loan and the Mortgage because of alleged breaches by the Paramount Group of the Paramount Funding Commitment.
[4] Following a case conference, McEwen J. ordered that the Limitations Issue raised by the Borrowers be heard first as it could render moot the relief sought by the Receiver’s Motion.
Summary of Outcome
[5] For the reasons that follow, I find that the Receiver’s Motion is not barred by the BC Limitation Act and may proceed to be determined, together with those aspects of the Borrowers’ cross-motion that relate to the determination of the amounts owing by them.
[6] It has not been established that there was an acknowledgment of liability by the Borrowers for amounts owing under the Loan and the Mortgage that restarted the running, and thereby extended the expiry, of the applicable two-year limitation period. However, the BC Petition (as defined below) was itself a court proceeding (preemptively brought by the Borrowers) in respect of the failure (omission) by the Borrowers to pay the Loan amount due upon the April 1, 2017 maturity date and the remedies available to the Lender arising therefrom that was commenced within the applicable two-year limitation period following the first default upon the maturity of the Loan and the Mortgage. The BC Petition was adjourned so that the very issues raised in it, and the Receiver’s opposition to it, could be decided in this Ontario receivership proceeding, and that is precisely what will occur upon the adjudication of the Receiver’s Motion and the Borrowers’ cross-motion.
[7] The Receiver’s Motion and the balance of the issues raised on the Borrower’s cross-motion (aside from the Limitations Issue, now decided) will proceed to a hearing before me in January 2023. That hearing date will be re-scheduled at a scheduling conference after the release of this endorsement since I am not sitting on the date the motion was previous scheduled to return (January 13, 2023).
The Uncontested Facts Relevant to the Limitations Issue
[8] The Loan was only a part of a complex series of transactions involving the planned severance and development of certain lands owned by the Sechelt Owner in British Columbia (“BC”).
[9] Only part of the available funds under the Paramount Funding Commitment were advanced. As of April 1, 2016, the amount of the Loan advanced was $916,512.50. Under the Mortgage, interest was to accrue on all Loan amounts at the rate of 6.0% per annum, compounded monthly until maturity on April 1, 2017. Thereafter, that rate increased to 12% per annum, compounded monthly.
[10] The Mortgage and GSA were registered on April 1, 2016. The maturity date, when the principal and all other charges came due under the Loan and the Mortgage, was April 1, 2017. None of the principal was ever repaid to the Lender. Interest payments were due on the 1st of each month following April 1, 2016. According to the Receiver, from the amount advanced, PEFC maintained an interest reserve sufficient to pay the interest payments for approximately a 12 month period.
[11] TBE suggests that no interest was ever paid, but appears, at least for purposes of this motion, to accept that the default date was the maturity date of April 1, 2017. The parties agree that the first default under the Loan and Mortgage occurred on April 1, 2017, when the principal was not repaid. That is the relevant date for the limitations analysis.
[12] The Lender made no demands and took no enforcement steps prior to the appointment of the Receiver on August 2, 2017. The Appointment Order prohibits (at paragraphs 10 and 11) the commencement of, and stayed and suspended all existing, proceedings, rights and remedies in respect of and against the Paramount Group and the Receiver.
[13] The Receiver communicated with TBE on or about October 25, 2017 about the Mortgage and inquired about the Borrowers’ intention to repay the Loan. The Receiver’s February 5, 2018 Report to the court described the Mortgage and its terms and reported that the Borrowers had raised various concerns about the Loan and the Mortgage with the Receiver.
[14] The Borrowers asked the Receiver if it would discharge the Mortgage if it received an assignment of the Promissory Note. The Receiver did not agree to do this. Nonetheless, the Borrowers assigned the Promissory Note to the Receiver on April 26, 2018 and claimed to have repaid the Loan. With the Promissory Note, the Borrowers provided a letter to the Receiver stating:
Pursuant to the terms of the Mortgage, the $916,512.50 “flow through” advance is now repaid and our client is entitled to a discharge of the Mortgage.
[15] The Receiver disputed that the Mortgage could be repaid through the assignment of the Promissory Note. Thereafter, on June 28, 2018, the Borrowers filed a petition in BC (the “BC Petition”) seeking declarations that they had satisfied all obligations under the Mortgage and the GSA and that they are entitled to a discharge of the Mortgage. They assert that the only obligation they could owe was repayment of the first tranche of the Loan, and that that obligation was performed upon assignment of the Promissory Note. In the BC Petition, they seek orders under ss. 243 and 244 of the Land Title Act, R.S.B.C. 1996, c. 250 (“LTA (BC)”) to cancel the Mortgage and under ss. 50(3) and 50(8)(b) of the Personal Property Security Act, R.S.B.C. 1996, c. 359 (“PPSA (BC)”) to discharge the GSA.
[16] It is undisputed that the Borrowers, through their counsel, were engaged in negotiations with the Receiver on the issue of whether the assignment of the Promissory Note could satisfy the Borrowers’ obligations to repay the Loan amounts. This is recorded, among other places, in a letter from their counsel dated May 21, 2019. By the end of August, 2019, the Borrowers had made it clear that they would not agree to have the matters at issue in the BC Petition resolved by an Ontario court in the context of the receivership proceedings.
[17] Not all of the mortgagees under the Mortgage are part of the Paramount Group, to which the Ontario receivership proceedings apply. However, PEFC was granted certain authority by the other mortgagees to act on their behalf in respect of the Mortgage. The Receiver entered into a litigation participation agreement with some of the mortgagees under the Mortgage on September 26, 2019 (subsequently approved by order of this court dated November 21, 2019). The preamble to this agreement is as follows:
The Borrower [TBE] has commenced a proceeding in the Supreme Court of British Columbia for an order, among other things, declaring that the Mortgage has been repaid and requiring the Receiver on behalf of the Lenders to discharge the Mortgage (the “Borrower's Proceeding”).
The Receiver, on behalf of the Lenders, intends to defend the Borrower’s Proceeding and commence a proceeding to enforce the Mortgage (the “Enforcement Proceeding”, and together with the Borrower’s Proceeding, the “Proceedings”).
[18] On September 26, 2019, the Receiver obtained an ex parte order in BC recognizing the Appointment Order. The Receiver thereafter sought an order to compel the Borrowers to comply with the BC’s recognition of the Receivership Order and adjourning the BC Petition (the “Stay Application”). One of the stated grounds for the Receiver’s Stay Application was that the Borrowers had notice of and had participated in the Ontario receivership proceedings with respect to matters at issue in the BC Petition since October 2017. TBE resisted the Receiver’s Stay Application and re-filed all the material from their BC Petition in support of their opposition on or about October 17, 2019.
[19] The Receiver’s Stay Application was heard on December 6, 2019. Sharma J.’s decision was released on April 9, 2020 in which the BC Petition was adjourned (the “Stay Decision”). In reasons for judgment dated April 9, 2020 (at paras. 6 and 56), Sharma J. stated:
[6] The Receiver also seeks an order adjourning generally TBE’s petition, Vancouver Registry No. S187279 (the “BC Petition”), which was filed in this Court on June 28, 2018, and was originally scheduled to be heard in October 2019.
[56] The BC Petition filed by TBE on June 28, 2018, Vancouver Registry No. S187279, is adjourned generally and cannot be reset for hearing except in accordance with the Receivership Order (i.e. with consent of the Receiver or leave of the Ontario Court) and TBE is ordered to comply with the BC Order, which registered the Receivership Order in British Columbia.
[20] In the Stay Decision (at paras. 31 and 32), Sharma J. summarized some of the Receiver’s submissions as follows:
[31] [T]he Receiver submits TBE [Clayton] is precluded from continuing the BC petition because it concerns matters which are subject of the Receivership Order (thus, the BC Order by registration under the Enforcement Act) and these matters are properly before the Ontario Court.
[32] Further, the Receiver submits that the “single control” model favours all matters related to the Receivership Order being dealt with in the Ontario Court.
[46] [A]ll the complaints raised by TBE are things that it can raise properly in the Ontario Court.
[52] TBE received notice of the receivership proceedings and has participated before the Ontario court in those proceedings. The BC Petition was filed after its proofs of claim were disallowed. Moreover, TBE has had the ability to apply to the Ontario Court for the relief its seeks in the BC Petition, or relief that would produce the same result.
[21] In the meantime, as a result of the COVID-19 pandemic, the running of limitation periods in BC was suspended from March 26, 2020 through to and including March 25, 2021.
[22] The Receiver’s Motion was served on March 4, 2022. The Receiver subsequently issued what it describes as a “placeholder” petition in BC on October 13, 2022 for judgment on the covenant and possession of the mortgaged property and foreclosure (the “Mortgage Enforcement Petition”).[^2]
[23] TBE’s cross-motion, returnable at the same time as the Receiver’s Motion, seeks essentially the same relief sought in the adjourned BC Petition.
Expert Evidence on the Law of British Columbia
[24] The Receiver and TBE each delivered reports of experts on the law of BC (the “BC Legal Experts”). The qualifications of both experts to opine on matters of BC law is acknowledged.
[25] The BC Legal Experts were asked to opine on the law relevant to the determination of when the limitation period expires/expired in respect of the Receiver’s Motion.
[26] The BC Legal Experts agree that BC law is applicable to the determination of the Limitations Issue. Although the prospect of an Ontario court applying Ontario law to the Limitations Issue, if decided in the context of the receivership proceedings in Ontario, was left open by the Receiver’s expert, no party suggested that the court do so.
[27] Both experts agree on the starting point under BC law: that there is a basic two-year limitation period under s. 6 of the BC Limitation Act for the commencement of an action for recovery of a debt or to enforce security for the debt. It is agreed that this two-year limitation period began to run upon the maturity of the Loan on April 1, 2017. The focus of the expert reports is on the question of whether the Borrowers acknowledged the debt and thus extended the limitation period under s. 24 of the BC Limitation Act.
[28] TBE’s expert, Peter Reardon, summarizes his opinion on the Limitations Issue as follows:
The limitation period for bringing a claim to enforce the mortgage security or to sue on the covenant to pay the mortgage debt is two years from the date of default by the mortgagors. The default occurred on April 1, 2017, the date upon which the balance of the mortgage debt was due and not paid. Consequently, the limitation period expired on April 1, 2019. A court proceeding regarding that claim must not be brought after that date. An action brought after that date will be dismissed as it is] statute barred.
The Receiver seeks an order declaring certain things. If the declarations sought are granted, further proceedings to enforce the mortgage or the debt will be required. Those proceedings being statute barred, the declarations sought would not be granted by a court in British Columbia [notwithstanding the exemption in s. 2(1)(d) of the BC Limitation Act for court proceedings in which the only relief sought is to obtain a declaration].
[29] The Receiver’s expert, John Grieve, summarizes his opinion on the Limitations Issue as follows:
If the only facts were those recited in the Reardon Opinion, then, on balance, and subject to my comments on the “Single Proceeding Model” referred to in Appendix “A”, Mr. Reardon is correct when he opines that the BC Act applies, and that the applicable limitation period has expired. However, and again on balance, I am of the view that within the Petition Proceedings, as defined below, there has been an acknowledgement of liability [within the meaning of s. 24 of the BC Limitation Act] such that the limitation period has not expired, and the Receiver is free to take action to enforce the Security. I’m further of the view, again, on balance, that the Supreme Court of British Columbia (“BCSC”) would grant an order on the application by the Receiver to convert the BC Petition [commenced within the two-year limitation period that TBE relies upon as having expired on April 1, 2019] into an Action and to authorize the filing of a counterclaim therein to enforce the Security.
[30] In Mr. Reardon’s supplementary opinion, he expresses disagreement with Mr. Grieve’s opinion on the acknowledgment. In Mr. Reardon’s opinion,
Section 24 requires a written acknowledgement of some present liability. The Manitoba Court of Appeal considered this exact issue in Munday (E.C.) Ltd. v. Canada Safeway Ltd., 2004 MBCA 143. In that case, the Court held at paragraph 62 that ‘to constitute an acknowledgment of a debt, the document must speak in present terms. Admitting a debt existed in the past does not acknowledge an existing debt.”
In this case, the BC Pleadings specifically deny that any amount is presently owing. Rather, the petitioners take the position that the amount advanced under the subject mortgage has been repaid and the mortgage ought to be discharged: see, for example, the BC Petition at Legal Basis, paras. 5, 6, 9 and 10. Therefore, the BC Pleadings are not acknowledgements of some liability within the meaning of the authorities.
[31] Mr. Reardon also opined that:
Thus, the issue of the liability of TBE for the debt claimed by the Receiver is squarely before the Ontario Court as a result of the application of the Receiver heard by Madam Justice Sharma. Included in the issues before the Ontario Court is the limitation defence raised by TBE.
In these circumstances, it is my opinion that the B.C. Supreme Court would not exercise its discretion to grant an order converting the BC petition into a trial. The rationale for converting a petition into a trial is to allow the court to adjudicate the dispute set out in the petition when there are contested facts which cannot be determined by affidavit and other procedures such as cross-examination available to the Court. However, in this case, this Court has already decided upon an alternative process and forum for determining the claims - the receivership proceedings in Ontario.
Alternatively, even if these matters end up again properly before the BC Court, the Receiver would have to overcome the threshold imposed by Cepuran described above.
If the BC Court is unable to find a triable issue or finds that the issues before it may be resolved by one or more of the hybrid procedures as described by Griffin J.A. in Cepuran, the BC Petition will not be converted into a trial. In those circumstances, the Receiver will not be able to advance a counterclaim and section 22 of the Act will not be not [sic] engaged.
The Limitations Issue
[32] To decide the Limitations Issue, the court must decide whether the Receiver’s Motion is statute barred because it was initiated after the expiry of the applicable limitation period under the BC Limitation Act. This determination engages two separate inquires:
i. Did the BC Petition, and TBE’s response to the Receiver’s Stay Application that re-asserted the same positions on October 17, 2019, constitute an acknowledgment of liability for the debt owing under the Loan and the Mortgage within the meaning of s. 24 of the BC Limitation Act, thereby (in combination with the suspension of the running of limitation periods between March 26, 2020 and March 25, 2021 due to the COVID-19 pandemic) extending the expiry of limitation period to October 17, 2022?
ii. Are the Receiver’s Motion and TBE’s cross-motion scheduled to be heard in January 2023 a continuation of the BC Petition that was adjourned in April 2020 and, if so, was the June 2018 BC Petition a court proceeding in respect of the failure (omission) by the Borrowers to pay the Loan amount due upon the April 1, 2017 maturity date and the remedies available to the Lender arising therefrom (the “Receiver’s Claim”) that was commenced within the two-year limitation period following the first default upon the maturity of the Loan and the Mortgage?
[33] The Borrowers raised a further question: whether the Receiver will be barred under the BC Limitation Act from taking or pursuing any steps to enforce the Security (e.g. pursuing the Receiver’s Mortgage Enforcement Petition). It is suggested that this is a relevant consideration tied up with the question of whether the Receiver’s Motion, inherently declaratory in nature, is statute barred.
Analysis of the Limitations Issue
[34] I will first address the questions that must be answered to determine the Limitations Issue as it relates to the Receiver’s Motion. I will then consider the further question of the relevance of limitations bars to follow-on enforcement proceedings by the Receiver.
A) Is the Receiver’s Motion barred by the applicable limitation period?
[35] The BC Legal Experts agree that the basic limitation period applicable to a claim on a debt is two-years from the first date of default by virtue of ss. 6 and 8 of the BC Limitation Act.
[36] A “claim” is defined in s. 1 of the BC Limitation Act as a claim to remedy an injury, loss or damage that occurred as a result of an act or omission.
[37] The parties agree that PEFC would have discovered its claim for repayment of the Loan on its maturity date, April 1, 2017.
[38] This means that unless either:
a. The commencement of the limitation period in respect of the Receiver’s Claim was delayed or its expiry was extended; or
b. A proceeding in respect of the Receiver’s Claim was initiated within the two-years of April 1, 2017 and/or is exempt by virtue of s. 2(1)(d) of the BC Limitation Act because it seeks only declaratory relief,
the Receiver’s Motion would be statute barred.
i) Has TBE Acknowledged liability for the Loan?
[39] The first issue is whether the Receiver’s Claim has been acknowledged by TBE. If so, such an acknowledgement would re-start the discovery date of the claim with the effect of extending the expiry of the basic two-year limitation period. This issue was the focus of the BC Legal Experts.
[40] Section 24 of the BC Limitation Act provides as follows:
24 (1) If, before the expiry of either of the limitation periods that, under this Act, apply to a claim, a person acknowledges liability in respect of the claim,
(a) the claim must not be considered to have been discovered on any day earlier than the day on which the acknowledgement is made, and (b) the act or omission on which the claim is based is deemed to have taken place on the day on which the acknowledgement is made.
[41] The Receiver’s Motion is unquestionably a claim in respect of the failure (omission) by the Borrowers to pay the Loan amount due upon the April 1, 2017 maturity date. PEFC’s loss or damage arising from this claim (asserted through the Receiver) would be the amount determined to be owing, if any. The question is whether TBE acknowledged liability in respect of the Receiver’s Claim prior to April 1, 2019. For any and every acknowledgment, the two-year limitation period for the Receiver’s Claim in respect of the unpaid Loan amount starts to run from the date of that acknowledgment, with the added time during the suspension of limitation periods in BC between March 26, 2020 and March 25, 2021.[^3]
[42] The Receiver’s expert, Mr. Grieve, opines that there is an inherent acknowledgment of the Loan amount due and payable on April 1, 2017 and that a debt was owed to PEFC in the BC Petition commenced by TBE in June of 2018 and re-asserted (by the re-filing of the BC Petition material) in response to the Stay Application on October 17, 2019. The assertion that the debt had been repaid is said to be an acknowledgment that “some liability” for the debt existed.
[43] The BC Legal Experts agree that an acknowledgment can be made in the context of pleadings in a proceeding: see Forjay Management Ltd. v. 0981478 B.C. Ltd., 2020 BCSC 637, 82 C.B.R. (6th) 107, which in turn relies on Fournogerakis v. Barlow, 2010 BCSC 732 to conclude an acknowledgement can be found in court pleadings to postpone the running of the limitation period. The form of the acknowledgment is not prescribed, but it must be clear and unequivocal to re-start the running of the limitation period.[^4]
[44] Mr. Reardon, TBE’s expert, opines that an acknowledgment that there was a Loan amount due and payable on April 1, 2017 and that a debt was owed to PEFC at that time is not the same thing as a present acknowledgment of some (or any) liability in respect of a subsisting claim by the Receiver for damages for the Loan amount and/or enforcement of the Security. To the contrary, in the BC Petition, TBE sought a declaration that the debt under the Loan and the Mortgage was satisfied by the assignment of the Promissory Note in April 2018 and sought to discharge and cancel the Security. Mr. Reardon suggests, a fortiori, that TBE cannot be found to have acknowledged in June 2018 or October 2019 that it was liable to PEFC or the Receiver for any amount owing under the Loan or the Mortgage.
[45] This case turns on whether the acknowledgment of TBE had to be of a present liability in order for PEFC and the Receiver to enjoy the benefit of s. 24 of the BC Limitation Act. I find that a plain reading of the language of s. 24 of the BC Limitation Act, worded similarly to the Ontario Act, requires an acknowledgment of present liability. An acknowledgement of past liability might be open to interpretation in some cases as a continuing acknowledgment of present liability, but not in a case such as this where the acknowledgment is made in the context of an affirmative assertion of the past liability having been satisfied and a specific request for the discharge and cancellation of the Security. In these circumstances, a reasonable person would not construe the BC Petition to be an acknowledgment of some (or any) liability under the Loan or the Mortgage: see Forjay, at para. 34; see also Brons v. 622943 B.C. Ltd., 2006 BCSC 193, at para. 29.
[46] This interpretation is consistent with the approach taken by the Manitoba Court of Appeal in considering similarly worded provisions under the Manitoba Limitations Act[^5] in E. C. Mundy Ltd. v. Canada Safeway Limited, 2004 MBCA 143, 187 Man. R. (2d) 281. In that case, the court held (at para. 62) that “[t]o constitute an acknowledgment of a debt, the document must speak in present terms. Admitting a debt existed in the past does not acknowledge an existing debt.” Although TBE has provided submissions on judicial comity, I do not need to get into a comity analysis to have regard to the decision out of the Manitoba Court of Appeal in Mundy in the consideration of a similar question under similarly worded legislation in BC.
[47] While not binding, this is a common practice followed by this court where there is helpful guidance from other courts in Canada (or, for that matter, in the commonwealth). Lower v. Investment Industry Regulatory Organization of Canada, 2019 BCSC 2188 (relied upon by TBE for a different purpose) is an example of a case in which the Supreme Court of British Columbia did just that. In any event, the approach taken by the Manitoba Court of Appeal in Mundy is helpful simply for purposes of demonstrating consistency and has not been relied upon as a binding authority for purposes of the within decision.
[48] The cases cited by both experts point to the need for there to be a clear and unequivocal acknowledgment of some liability. The Receiver has not established that TBE acknowledged some (or any) liability in respect of the Receiver’s Claim prior to April 1, 2019.
ii) Was a court proceeding in respect of the Receiver’s Claim commenced within two-years of the Loan maturity date and is the Receiver’s Motion an extension or continuation of that claim?
[49] The BC Legal Experts did not directly address the question of whether the BC Petition was a proceeding in respect of the Receiver’s Claim that was commenced within the two-year limitation period under s. 6 of the BC Limitation Act and that has been continued in the Ontario receivership proceeding and now brought forward in the Receiver’s Motion and TBE’s cross-motion.
[50] In the absence of any expert evidence on BC law applicable to this question, I am entitled to assume that the law is the same as in Ontario. In any event, this is largely a factual question rather than a legal one.
[51] The BC Petition was a peremptory strike by TBE. They sought to have the BC court declare that the Borrowers no longer owed anything under the Loan or the Mortgage, having satisfied their obligations for that debt by assigning the Promissory Note, and asked for an order for the discharge and release or cancellation of the Security. The BC Petition was commenced in June of 2018, less than two-years after the Loan maturity date.
[52] I find that the BC Petition was a proceeding in respect of the Receiver’s Claim. I was not directed to any authority that prevents a party to a proceeding from sheltering a claim that is inherently raised (even if for the purpose of extinguishing it) in a contested proceeding preemptively commenced by another party. The fact that the Borrowers sought in the BC Petition to preemptively have the BC court declare that they owed nothing under the Loan and Mortgage does not change the essence of that proceeding, which was to extinguish the Receiver’s Claim for any amounts owing under the Loan and the Mortgage. The determination of the Receiver’s Claim was inextricably bound up in the BC Petition.
[53] The BC Petition was commenced within the basic two-year limitation period under the BC Limitation Act. The BC Petition was adjourned, not dismissed, by the Stay Decision.
[54] The Borrowers argue that the BC Petition was not “adjourned to” the Ontario receivership proceeding. That strikes me as a technical distinction. The Stay Decision was predicated on two points. First, the existence of this proceeding in Ontario (commenced in 2017). Second, the Receiver’s submissions that the issues raised in the BC Petition concern matters that are the subject of the receivership proceedings before the Ontario court, in which TBE could raise the same concerns and apply for the relief its seeks in the BC Petition. It was clearly contemplated that the issues raised in the BC Petition (now adjourned) would be traversed to and continued in the Ontario receivership proceedings. That is precisely what has occurred through the Receiver’s Motion and TBE’s cross-motion.
[55] I find that the continuity of the BC Petition has been preserved through its adjournment to allow the very same claims raised to be decided in the Ontario receivership proceeding. The precise timing and mechanism by which this has been accomplished, through the Receiver’s Motion and TBE’s cross-motion subsequently brought in the existing Ontario receivership proceeding, does not detract from the finding that a proceeding in respect of the claims underlying these motions was commenced within the basic limitation period. Therefore, I find that the Receiver’s Motion (and the relief corresponding with the BC Petition sought in TBE’s cross-motion) are not statute barred and may proceed. However, these motions will need to be re-scheduled to a new date before me as was contemplated by the scheduling endorsement, which unfortunately has currently scheduled these motions on a date that I am unavailable.
[56] While more cumbersome and inefficient, had I not reached this conclusion then I would have ordered the stay lifted and permitted the adjourned BC Petition to proceed. It could not have been intended that the issues raised in the adjourned BC Petition would not be adjudicated on their merits because of an unspoken limitations argument. On the Borrower’s theory, regardless of when the Receiver brought its Motion after the Stay Decision was released in April 2020, that Motion would have been barred under the BC Limitation Act. That was not argued before the BC court and the intention was clearly for those issues to be adjudicated on their merits. The outcome of the Stay Decision might have been different if the limitations argument had been raised at that time.
B) Are there limitations bars to any follow-on proceedings for the enforcement of the Security that the Receiver may take arising out of the declaratory relief sought on the Receiver’s Motion?
[57] Section 2(1) of the BC Limitation Act exempts applications for declaratory relief from the operation of that statute altogether. Technically, the Receiver’s Motion is only seeking declaratory relief as to the amounts outstanding and payable under the Loan and Mortgage. However, it is at the very least the foundation for a claim for damages and judgment for any amounts declared to be owing. According to Mr. Reardon’s (unchallenged) expert opinion, that renders the Receiver’s Motion subject to the limitations analysis. That analysis (above) has led to the determination that the Receiver’s Claim (as framed by the Receiver’s Motion and response to TBE’s cross-motion) is not statute barred.
[58] In the opinion of TBE’s expert, Mr Reardon, the limited declaratory relief sought on the Receiver’s Motion should not be the end of the inquiry on the limitations question. He opines that, even if the declarations sought are granted, further proceedings to enforce the Mortgage or the Loan will be required. If those proceeding are statute barred, he believes that the declarations sought by the Receiver’s Motion would not be granted by a court in BC. In Lower (at paras. 83 and 88), the BC court determined (following authorities like McMurtry v. McMurtry, 2016 ONSC 2853 from other provinces, including Ontario) that because the declaratory relief was merely ancillary to the consequential relief that would be barred by the BC Limitation Act, the declaration should not be granted.
[59] TBE argues that the declaratory relief sought by these motions is simply a stepping stone to the Receiver’s Mortgage Enforcement Petition that was only commenced in BC in October 2022, long past the expiry of the applicable limitation period under s. 15 of the BC Limitation Act. That section prescribes the discovery rule for claims to realize or redeem security as follows: “A claim to realize or redeem security is discovered on the first day that the right to enforce the security arises.”
[60] The Receiver had the right to enforce its Security upon the maturity of the Loan, on April 1, 2017. While TBE sought to have the Security discharged, released or cancelled by the BC Petition, the enforcement of the Security was never part of the BC Petition nor has it been directly raised in the Receiver’s Motion. The enforcement, realization or redemption of the Security is a remedy that the Receiver presumably would eventually want to seek in respect of the Receiver’s Claim, if successful on its motion. It stated as much in the preamble to litigation participation agreement that was signed with certain other participating mortgagees in September 2019 before steps were taken to adjourn the BC Petition and advance the Receiver’s Claims in the Ontario receivership proceedings.
[61] That, says the Receiver, is the reason it commenced the “placeholder” Security Enforcement Proceeding last month in BC. However, the timing of that proceeding, having regard to the provisions of the BC Limitation Act, was tied to the Receiver’s assertion that there was an acknowledgment of liability by the Borrowers in October 2019, thereby re-starting the limitation period that would then not have expired until October 2022, an assertion that has not found favour with this court, as explained above.
[62] For reasons previously indicated, the Receiver’s Motion and related relief in TBE’s cross-motion have not been found to be statute barred on grounds completely independent of s. 2 (1) of the BC Limitation Act and the declaratory nature of the relief sought. There may be remedies arising from the determination of the Receiver’s Motion and TBE’s cross-motion that are statute barred, but that issue is not before this court. More precisely, the question of whether the Receiver’s Mortgage Enforcement Petition is statute barred is not before this court.
[63] Mr. Grieve, the Receiver’s BC Legal Expert, has come at this issue from a different perspective, giving rise to an alternative request by the Receiver. That request, if the court were to accept the limitations argument of the Borrowers, is for this court to adjourn all issues presently before it in respect of the Receiver’s Claim and send them back to the BC court to decide, rather than declare them barred under the BC Limitation Act.
[64] Under this alternative scenario, the Ontario court, if otherwise inclined to find that the Receiver’s Motion is barred by the basic two-year limitation period, is being asked to effectively adjourn the Receiver’s Motion and TBE’s cross-motion and grant leave for the BC Petition to proceed before the BC Court. The Receiver would then ask the BC court to exercise its discretion to convert the BC Petition into an action so that the Receiver could assert its claims (not only for the declaration of amounts owing but also in the Mortgage Enforcement Petition) in a counterclaim. This is said to be a viable way to preserve the Receiver’s Claim, utilizing s. 22 (1) of the BC Limitation Act that prescribes that there is no limitation period that bars the pursuit of a counterclaim to a claim commenced within the applicable limitation period.
[65] The BC Legal Experts agree that the BC Rules do not permit a counterclaim to a petition. A counterclaim may only be filed in an action. One can apply to convert the petition to an action and then apply to file a counterclaim: Edward Chapman, Limited v. FS Property Inc., 2022 BCCA 213. Although different authorities are relied upon by the BC Legal Experts, and they suggest that the exercise of the court’s discretion would lead to different outcomes, they agree that it would be a matter of discretion for the court to decide whether to convert it to an action and refer the remaining issues in the BC Petition (the discharge of the Security) to trial: see Cepuran v. Carlton, 2022 BCCA 76, 62 B.C.L.R. (6th) 277, at paras. 158, 160; see also BC Milk Marketing Board v. Saputo, 2016 BCSC 1366, rev’d on other grounds, 2017 BCCA 247. It is undisputed that if those procedural steps occurred, the Receiver could in theory raise, by way of counterclaim, the issues raised in the Mortgage Enforcement Petition unencumbered by any limitation period under the BC Limitation Act.
[66] Given all that has transpired to bring these issues forward in the Ontario receivership proceeding at the behest of the Receiver since the Stay Decision, this approach would be highly inefficient and inconsistent with the efforts undertaken by the parties to date.[^6] The scenario under which the court was asked by the Receiver to consider this alternative scenario has not come to pass since the court has not found the Receiver’s Motion to be statute barred by the BC Limitation Act.
[67] I do not consider the determination of the issues currently before the court in the Ontario receivership proceeding (raised by the Receiver’s Motion and TBE’s cross-motion, at least insofar as the determination of amounts owing, if any, under the Mortgage and Loan) to be a waste of the court’s or the party’s time, even if it leaves some open questions about the future pursuit of remedies under certain scenarios. I decline to make any order at this time regarding the conduct of future proceedings in BC.
C) Residual Considerations
[68] There is a scenario in which the question of whether to grant part of the relief sought by the Borrowers in their cross-motion (and sought by them in the BC Petition) for the discharge, release and cancellation of the Mortgage and GSA under the LTA (BC) and PPSA (BC) may still need to be considered (e.g. if the Receiver’s Motion for determination of amounts owing is not decided in its favour). I have not been directed to any opinions from the BC law experts on these points of law, namely the basis on which the Mortgage and GSA could be discharged, released or cancelled under BC law.[^7]
[69] As matters currently stand, I anticipate that one possible outcome if this residual issue remains to be determined will be for it to be referred back to be decided by the BC court in the BC Petition (with leave) if the Receiver’s Motion is not decided in favour of the Receiver (that appears to be contemplated by some of the alternative relief sought in the notice of cross-motion). Conversely, it may also make sense for the BC court to itself determine any limitations or other issues raised and argued with respect to the Mortgage Enforcement Petition (or in respect of the Receiver’s pursuit of any other remedies) if the Receiver’s Motion is decided in its favour. Despite some of the submissions made, I do not consider these to be matters for the Ontario court to decide at this time, and it may be determined to be more appropriate for them to be decided by the BC court if they do arise.[^8] I will be prepared to receive further submissions about the appropriate forum in which to raise these issues at the return of the Receiver’s Motion and the Borrowers’ cross-motion.
[70] Although there was reference to allegations of fraud, and some time was spent in the written and oral submissions addressing these allegations, the determination of the Limitations Issue was not dependent on the court’s consideration or assessment of these allegations. Accordingly, I have not made any mention of them in this endorsement as they had no bearing on the outcome.
Costs and Case Conference to Determine Next Steps
[71] Cost outlines were to be exchanged following the hearing of the motion on the Limitations Issue. They have now been exchanged. It was suggested by counsel at the hearing that the costs of this motion could depend on the outcome. It was also suggested that the parties attend a case conference to address this issue.
[72] Counsel should arrange a case conference before me through the scheduling office so that the court may consider their joint, or individual, proposals for how best to address the costs of this motion. The parties are encouraged to agree on an appropriate quantum and scale of costs for this motion, even if they do not agree on when they are payable.
[73] At the same case conference, a new hearing date will be set for the hearing of the Receiver’s Motion and the aspects of the TBE cross-motion that are directed to the determination of whether any amounts are owing under the Loan and Mortgage, since I am unavailable to hear these matters on January 13, 2023. Counsel should come prepared to address the amount of time that should be scheduled for this hearing, as I have some concern about whether the half-day apparently booked will be sufficient, having had a preview of some of the issues expected to be canvassed.
Summary of Orders and Directions
[74] The court has found that the Receiver’s Motion is not barred by the BC Limitation Act. That motion and the aspects of TBE’s cross-motion that are directed to the question of the amounts owing under the Loan and Mortgage are adjourned from January 13, 2023 to a date to be scheduled at a case conference to be arranged by counsel. Costs of the determination of this Limitations Issue are reserved to be determined by this court following further directions to be provided by me at the case conference.
[75] Below is a summary of the court’s relevant findings in respect of the Limitations Issue:
a. The Receiver’s Claim is in respect of the failure (omission) by the Borrowers to pay the Loan amount due upon the April 1, 2017 maturity date.
b. The Receiver has not established that TBE acknowledged some (or any) liability in respect of the Receiver’s Claim prior to April 1, 2019.
c. The June 2018 BC Petition is a court proceeding in respect of the Receiver’s Claim that was commenced within the two-year limitation period following the first default upon the maturity of the Loan and the Mortgage.
d. It was clearly contemplated that the issues raised in the BC Petition (now adjourned) would be traversed to and continued in the Ontario receivership proceedings. That is precisely what has occurred through the Receiver’s Motion and TBE’s cross-motion.
e. The Receiver’s Motion seeks declarations regarding the amounts due and payable by the Borrowers under the Loan and Mortgage. The BC Petition and the Borrowers’ cross-motion seek a declaration that no amounts are due and payable by them under the Loan and Mortgage and seek to extinguish the Security.
f. I find that the continuity of the BC Petition has been preserved through its adjournment to allow the very same claims raised to be decided in the Ontario receivership proceeding. Therefore, I find that the Receiver’s Motion (and the relief corresponding with the BC Petition sought in TBE’s cross-motion) are not statute barred and may proceed to be determined by the Ontario court.
g. The question of whether the Receiver’s Mortgage Enforcement Petition is statute barred is not before this court and no order is made in that regard.
h. Counsel are directed to arrange a case conference before me through the scheduling office so that the court may consider their joint, or individual, proposals for how best to address the costs of the preliminary determination of the Limitations Issue on this motion and to re-schedule the remainder of the Receiver’s Motion and the Borrowers’ cross-motion. Counsel should come prepared to address the amount of time that should be scheduled for this hearing, having regard to the court’s concern about whether the half-day apparently booked will be sufficient.
[76] This endorsement and the orders and directions contained in it shall have immediate effect as a court order without the necessity of the formal issuance and entry of an order. Either party may take out a formal order by following the procedure under Rule 59, if so advised.
Kimmel J.
Date: November 21, 2022
[^1]: Under specified BC statutes, the LTA (BC) and the PPSA (BC), as hereinafter defined.
[^2]: The question of what will become of the Receiver’s Mortgage Enforcement Petition in BC is not presently before the court and is not expected to be decided by this court in the context of the Receiver’s Motion or TBE’s cross-motion.
[^3]: Ministerial Order No. MOS6, Limitation Periods (COVID 19) Order; COVID-19 Related Measures Act, S.B.C. 2020, c. 8; Order in Council 655/2020; Law Society of British Columbia, Guidelines for calculating BC limitation periods.
[^4]: The requirements for establishing an acknowledgment under the comparable Ontario legislation, Limitations Act, 2002, S.O. 2002 c. 24 Sched. B, is the same. I had occasion to consider it recently in Sugatec Construction Limited v. Greenvilla Homes (Thickson) Limited, 2022 ONSC 2036, at para. 44.
[^5]: I note that the Manitoba legislation in place when Mundy was decided was not identical. The primary difference was that ss. 9(1)(b) and 9(2) at issue in Mundy required that an acknowledgment be in writing, whereas the “in writing” requirement does not exist in s. 24 of the BC Limitation Act. The question of whether the acknowledgment must be of a present liability is not affected by whether the acknowledgment is in writing or not. The Manitoba legislation in effect at the time also prescribed a six year limitation period, as opposed to the two year period applicable in this case. Another distinction that does not impact the analysis for present purposes.
[^6]: As noted earlier, this inefficiency might have been justified, and the alternative scenario postulated by the Receiver might have been adopted, if the intended purpose of adjourning the BC Petition to allow the issue raised to be adjudicated on their merits in the Ontario receivership proceeding could not be achieved as a result of limitations argument subsequently raised by the Borrowers.
[^7]: For example, some submissions were made about whether these statutory provisions can be applied when the performance of a loan is not satisfied by way of an actual payment of funds.
[^8]: For example, some submissions were made about whether the limitation period applies to the spectrum of potential remedies, or only to the underlying claim. Submissions were also made about when it is legally appropriate to commence an enforcement proceeding that is dependent upon the determination of an issue already before the court, which in turn may impact the commencement of the limitation period for such a claim, and may override s. 15 of the BC Limitation Act regarding the time for commencing a proceeding to realize upon security.