Court File and Parties

COURT FILE NO.: CV-10-2087

DATE: 20230116

SUPERIOR COURT OF JUSTICE – ONTARIO

IN THE MATTER OF the Construction Lien Act, R.S.O. 1990, c. C. 30

RE: Environmental Waterproofing Inc. and Randy Wilson c.o.b. Maple Hill Electric, Creditors

AND

Huron Tract Holdings Inc., Debtor

AND

Jokey Plastics North America Inc., Garnishee

BEFORE: Justice Spencer Nicholson

COUNSEL: M. Cook, for the Creditors

D. Swift and S. Zeitz for Libro Credit Union, an Interested Party

HEARD: September 20, 2022

REASONS

NICHOLSON J.:

[1] Libro Credit Union (“Libro”) has brought a motion pursuant to rule 60.08(16) of the Rules of Civil Procedure for a determination of a priority dispute with respect to garnishment proceedings emanating from a judgment in favour of Environmental Waterproofing Inc. (“Environmental”) as against Huron Tract Holdings Inc. (“Huron”).

[2] Rule 60.08 (16) provides as follows:

(16) On motion by a creditor, debtor, garnishee, co-owner of the debt or any other interested person, the court may,

(a) where it is alleged that the debt of the garnishee to the debtor has been assigned or encumbered, order the assignee or encumbrancer to appear and state the nature and particulars of the claim;

(b) determine the rights and liabilities of the garnishee, the debtor, any co-owner of the debt and any assignee or encumbrancer;

(c) vary or suspend periodic payments under a notice of garnishment; or

(d) determine any other matter in relation to a notice of garnishment, and the court may proceed in a summary manner, but where the motion is made to an associate judge and raises a genuine issue of fact or of law, it shall be adjourned to be heard by a judge.

[3] The only participants in the motion were Libro and Environmental. There is no question that Libro is an “interested party” and is a proper party to this motion and I so find.

Background:

[4] Libro is in a long line of succession from Heartland Community Credit Union Limited (“Heartland”), which line includes United Communities Credit Union Limited (“UCCU”). Those institutions had a longstanding relationship with Huron and its principal, Jake Bulk. Huron owned and operated commercial and residential rental properties throughout Goderich, Ontario. Heartland provided financing to Huron to fund Huron’s business operations. As of November 8, 2007, the financing included the following:

(a) A line of credit loan with a limit of $25,000;

(b) A demand instalment loan in the amount of $1,650,000; and

(c) A demand instalment loan in the amount of $1,286,071.

[5] These loans were secured by a General Security Agreement (“GSA”) dated September 3, 2004, a guarantee from a related company, Huron Tract Developments Inc. (“HTD”), a $500,000 mortgage against a property located in Goderich, a $300,000 mortgage registered against the same property and a $1,500,000 mortgage registered against a separate property in Goderich.

[6] The GSA granted Heartland a general and continuing collateral security for payment of all existing and future indebtedness and liability of Huron to Heartland. This included property now owned or thereafter acquired. Heartland registered its security interest by way of two separate registrations under the Personal Property Security Act, R.S.O. 1990., c. P. 10 (“PPSA”) in 2004.

[7] In the summer of 2008, Huron defaulted on its financing. The amount owing was $2,233,183.79. When Huron failed to remedy its default, Notices of Sale Under Mortgage were issued. As part of those proceedings, payments were made by UCCU for property tax arrears, quarterly tax instalments for 2009 and utilities. These payments approximated $300,000.

[8] On March 31, 2009, an order was obtained on motion appointing an interim receiver and receiver and manager of all assets, undertakings and properties of both Huron and HTD. The receiver took possession of all assets of Huron and HTD and took steps to realize on those assets with net proceeds being paid to UCCU. The receivership resulted in the payment of $997,609.76 being paid to UCCU.

[9] One of Huron’s assets was a Debenture that Huron had been granted by Jokey Plastics North America (“Jokey”) in the amount of $1 million. The Debenture matured on October 19, 2019 and was registered against title to property in Goderich owned by Jokey and provided for potential “income participation” to be payable to Huron if Jokey had positive taxable income in any given tax year. This condition was never met during any year that Huron was under receivership. Given the Debenture’s date of maturity, the receiver was unable to realize this asset for the benefit of Huron’s creditors. The receiver attempted to negotiate an early payout of the Debenture with Jokey, but to no avail.

[10] On November 12, 2013, the receiver was granted discharge pursuant to court order. That order included the following paragraph:

“THIS COURT ORDERS that the Receiver be and is hereby authorized to release any and all interest it has in the Jokey Debenture, as that term is defined in the Tenth Report, to United Communities Credit Union Limited and that such release shall be effective upon the issuance of the within Order.”

[11] Libro’s legal representative, Mr. Swift, throughout 2016, 2017 and 2018 corresponded with Jokey in respect of Libro’s claim to the Debenture to obtain Jokey’s financial records and determine if there had been any “income participation” owing under the Debenture.

[12] During this period of time, the registrations under the PPSA expired. When Libro discovered the PPSA expirations, new registrations under the PPSA were made in favour of Libro in February and April 2017.

[13] In late October 2018, Mr. Swift contacted counsel for Libro with a view to negotiating an early payout of the Debenture. Nothing came of those communications.

[14] Meanwhile, in May of 2010 Environmental sued Huron for breach of trust in relation to the Construction Lien Act, R.S.O. 1990, c. C. 30, as amended. The action arose out of construction services and materials provided by Environmental to Huron between June 2004 and June 2008. Eventually, Environmental obtained a judgment dated November 14, 2018, against Huron and Jake Bulk in the amount of $166,826.01 plus prejudgment interest of $60,434.44 and costs of $32,854.43.

[15] To enforce its judgment, Environmental served Jokey with a Notice of Garnishment in the amount of $265,480.08 on March 27, 2019. In response, Jokey advised Environmental’s lawyer, Ms. Cook, that it would satisfy the notice of garnishment when the Debenture matured on October 10, 2019. Two smaller notices of garnishment followed each in the amount of $3,132.44.

[16] Mr. Swift reached out to Jokey in April of 2019 to inquire as to its 2017 and 2018 income for the purpose of determining whether the income participation had been triggered. In response, Jokey advised that it had been served with Environmental’s Notice of Garnishment. Jokey also advised that it wished to pay out the Debenture no later than August 30, 2019. Mr. Swift advised Jokey that Libro held priority to the Debenture as a secured creditor.

[17] On May 30, 2019, Mr. Swift contacted Ms. Cook and asserted Libro’s priority interest in the Debenture. Several correspondences followed between counsel, sharing information about their clients’ respective claims to the Debenture. Counsel discussed whether the proceeds from the Debenture could be held in trust pending a resolution of the priority dispute. While no agreement appears to have been reached on that issue, Ms. Cook wrote on July 31, 2019 that her clients “do not object to the immediate payment of the sum of $700,000 to Huron Tract Holdings Inc. (my emphasis)”. Mr. Swift takes the position that he did not notice that it was proposed that the recipient of the funds be Huron, as opposed to Libro. Nothing turns on this.

[18] On July 31, 2019, Jokey forwarded payment in the amount of $700,000 to Libro. Mr. Swift confirmed to Ms. Cook that his client had received $700,000 from Jokey by email dated August 2, 2019. It appears the balance of the $300,000 was being held by Jokey’s lawyers in trust pending resolution of the priority dispute.

[19] Environmental brought a motion returnable on September 17, 2019, with respect to the garnishment. That motion was not served upon Libro. The Notice of Motion sought an order that Jokey pay the full amount of the debt set out in the garnishments and to determine the rights and liabilities of Jokey. The motion did not purport to seek any determination of the rights and liabilities of Libro with respect to the funds.

[20] Upon learning of the motion, Mr. Swift wrote to Ms. Cook on September 10, 2019, advising that Libro was a necessary party to the motion. Libro sought an adjournment of the motion to allow it to file materials. Ms. Cook responded on September 11, 2019 advising as follows:

“Mr. Swift’s client is not a necessary party to my clients’ motion for a garnishment order against Jokey. My client is not seeking any relief against Mr. Swift’s client.”

Later, on September 12, 2019, Ms. Cook wrote:

“[m]y clients seek no relief against your client, and, accordingly, they do not recognize your client as a necessary party to the motion at this time.”

[21] On November 13, 2019, the motion was heard by Gorman J. Mr. Swift attended and advised the court that he took no position on the relief sought but asked for the court to include a term requiring a further hearing to be held to determine priority to those funds. The order granted by Gorman J. required Jokey to pay the sum of $265,480.08, plus $3,132.44 (x2) into court. No provision was made for a further hearing in the order. However, her endorsement states as follows:

“Mr. David Swift, counsel for a secured creditor of the Garnishee, Libro Credit Union, appeared as an interested party to assert priority. This may indeed be an issue for another day, however the motion was heard as between the Creditor and its Garnishee.”

[22] The funds have been paid in accordance with Gorman J.’s order. No appeal was taken from her order.

[23] Libro then brought a motion under rule 60.08 (16) for a determination of the priority dispute between it, as an interested party, and Environmental, as a judgment creditor. That motion was argued on September 15, 2020 before Carroccia J. Environmental brought a cross-motion, argued at the same time, that the motion was an impermissible collateral attack on the order of Gorman J. and was an abuse of process. Carroccia J. granted the cross-motion and dismissed Libro’s motion on that basis.

[24] Libro appealed. The appeal was argued on November 19, 2021. The Court of Appeal rendered its decision on November 24, 2021, setting aside the decision of Carroccia J. and remitting it back to the Superior Court of Justice for a hearing of the priority dispute on its merits. The Court of Appeal decision did not address the priority dispute whatsoever.

[25] Thus, the matter found its way to me.

Positions of the Parties:

[26] Libro argues that pursuant to the PPSA, its security interest in the Debenture is deemed to have been continuously perfected from the date of the initial PPSA registration. Thus, unless another party obtained superior rights in the collateral during the period in which the registration had lapsed, Libro asserts priority to the entirety of the funds.

[27] Environmental raises three arguments. First, it argues that that Libro has no ownership interest in the Debenture that would give it priority. Secondly, Environmental asserts that Libro’s claim is statute-barred by the passage of the two-year limitation period under the Limitations Act, 2002, S.O. 2002, c 24. Finally, Environmental asserts that Libro would be unjustly enriched at Environmental’s expense if it received any portion of the garnished funds.

Discussion:

Scheme of the PPSA:

[28] It is important for this analysis to understand the scheme of the PPSA. The PPSA contains an orderly and certain manner for taking and enforcing security interests. It permits a creditor, or potential creditor, to know where its security interest as against a debtor, or potential debtor, will rank as against other interests, including other security interests, whether registered under the PPSA or not. Such a system is key in the regulation of financing.

[29] Section 2 of the PPSA provides as follows:

2. Subject to subsection 4(1), this Act applies to,

(a) every transaction without regard to its form and without regard to the person who has title to the collateral that in substance creates a security interest including, without limiting the foregoing,

(i) a chattel mortgage, conditional sale, equipment trust, debenture, floating charge, pledge, trust indenture or trust receipt, and

(ii) an assignment, lease or consignment that secures payment or performance of an obligation.

[30] A “security interest” is defined broadly as “an interest in personal property that secures payment or performance of an obligation”. “Personal property” is similarly broadly defined, including chattel paper, documents of title, goods, instruments, intangibles, money and investment property, as well as fixtures. Accordingly, the PPSA has a very extensive application.

[31] Heartland’s loans to Huron were secured by way of a GSA which granted a security interest to Heartland in the undertaking of Huron and all the defined collateral as “a general and continuing collateral security for payment of all existing and future indebtedness and liability…wheresoever and howsoever incurred and any ultimate unpaid balance thereof.” “Collateral” in the GSA was defined as including “all of the herein mentioned undertaking and property whether now owned or hereafter acquired or in respect of which [Huron] has or subsequently acquires rights, and whether tangible or otherwise”. Property was then specifically described as including inventory, equipment, receivables, chattel papers, documents of title, securities, instruments and intangibles. It also included “proceeds”, being any personal property derived directly or indirectly from any dealing with the collateral. Debentures were expressly included under the description of securities.

[32] There can be no doubt, therefore, that the PPSA applies to the transaction between Heartland, and its successors, and Huron. Similarly, the Debenture in issue would be part of the collateral granted by Huron to Heartland as security for the loans.

[33] Section 9 of the PPSA provides that, except as otherwise provided by the PPSA or any other Act, a security agreement is effective according to its terms between the parties to it and against third parties. However, in order for a security interest to be enforceable against a third party, the holder of the security interest must comply with the PPSA’s requirements. First of all, there must be “attachment” pursuant to s. 11 of the PPSA. This occurs when the debtor signs a security agreement that contains a description of the collateral sufficient to enable it to be identified, value is given and if the debtor has rights in the collateral. All three of those pre-requisites would have been met in this case.

[34] Security interests that are “unperfected” are subordinate to other specifically enumerated interests, as set out in s. 20(1)(a) of the PPSA. That includes:

(i) a person who has a perfected security interest in the same collateral or who has a lien given under any other Act or by a rule of law or who has a priority under any other Act, or

(ii) a person who causes the collateral to be seized through execution, attachment, garnishment, charging order, equitable execution or other legal process, or

(iii) all persons entitled by the Creditors’ Relief Act, 2010 or otherwise to participate in the distribution of the property over which a person described in subclause (ii) has caused seizure of the collateral, or the proceeds of such property.

[35] Given s. 20, perfected security interests take priority over any of the interests set out in 20(1)(a)(i),(ii) and (iii) (see: 1889072 Ontario Limited v. Globealive Wireless Management Corp. et al, 2016 ONSC 3578, Access Advertising Management Inc. v. Servex Computers Inc., 1993 CanLII 5471 (ON SC) and Friendly v. 1671379 Ontario Inc., 2022 ONSC 2409). In all three of those decisions, the court held that perfected security interests take precedence over judgment creditors relying on garnishments.

[36] Section 19 of the PPSA describes when a security interest is perfected. A security interest is perfected when it has both attached and all steps required for perfection under any provision of the PPSA have been completed. Perfection can be accomplished through various manners specifically described in the PPSA, for example, by taking possession or repossession of the collateral (s. 22). Another manner in which a security interest may become perfected is by registration (s. 23). Importantly, this applies to any type of collateral. Furthermore, the order of registration governs which of two or more perfected security interests has priority, with the earliest registration enjoying first position. Similarly, a registered security interest takes priority over a security interest perfected in another fashion if the registration occurred first.

[37] Importantly, should a registration lapse so that the security interest ceases to be perfected, it may be “re-perfected” by registering it again. Should that occur, s. 30(6) provides that the security interest shall be deemed to have been continuously perfected from the time of first perfection. However, that subsection also provides that if a person acquires rights in all or part of the collateral during the period when the security interest was unperfected, the registration is not effective against the person who acquired the rights (see: PSINet Ltd., Re, 2002 CanLII 49572 (ON SC)).

[38] Part V of the PPSA sets out the rights and remedies of the secured creditor and the debtor upon default. This Part applies to a security interest only if it secures payment or performance of an obligation (s. 57.1). Importantly, the rights and remedies are cumulative (s. 58).

[39] First of all, s. 59 provides that were a debtor is in default under a security agreement, the secured party has the rights and remedies provided for in that security agreement and the rights and remedies provided in Part V.

[40] Subsection 59(2) allows the secured party to enforce a security interest by any method permitted by law. Thus, the secured creditor may commence an action on the debt and then take enforcement proceedings on the resulting judgment. However, it is critically important to understand that this is not the only remedy that the secured party has at its disposal. A secured creditor is not required to commence a court action to pursue a remedy under the PPSA.

[41] For example, a secured creditor may opt to:

• appoint a receiver or ask the court to appoint a receiver (s. 60);

• collect receivables directly from any person obligated on an account to the debtor (s. 61);

• take possession of the collateral (s. 62);

• dispose of the collateral by sale (s. 63);

• retain the collateral in satisfaction of the debt (s. 65(2).

[42] Finally, s. 67 of the PPSA empowers the court, on application by, inter alia, the secured creditor, the debtor, or any person who has an interest in collateral to make a number of types of orders.

Applying the PPSA to the Within Case:

[43] In the within case, no issue was taken that the security interest attached and was perfected by registration by Heartland in 2004. Accordingly, at the time that Huron defaulted upon its obligations under the loans, Heartland was a secured creditor. That UCCU had a perfected security interest as of the date that the receiver was appointed was conceded during oral argument by Environmental.

[44] There is also no dispute that there was a perfected security interest at the time that Environmental provided the services and material to Huron. Pursuant to s. 20(1)(a)(i), Environmental’s lien claim would be subordinated to a perfected security interest.

[45] Thus, upon Huron’s default, the secured creditor (UCCU by then), had the remedies available to it pursuant to the GSA and pursuant to Part V of the PPSA. The GSA specifically granted UCCU the right to appoint a receiver. UCCU also could have applied to the court for the appointment of a receiver pursuant to s. 60 of the PPSA. Importantly, UCCU was not required to commence an action to pursue its remedy, although it could have also done so.

[46] Clearly, UCCU was within its right to seek the appointment of a receiver. Through the receiver, UCCU was able to realize on all of the available collateral that it could, with the exception of the Debenture, which did not mature until October 19, 2019. The Tenth Report of the Receiver, dated October 28, 2013, makes it clear that the court supervised the receivership throughout. It is clear that this was an appropriate and effective avenue by which UCCU could obtain relief for the unpaid debt owed by Huron. It would not have made any sense for UCCU to have commenced a court action during this period of time. It achieved all that it could pending the maturity of the Debenture. Furthermore, under the PPSA, I reiterate that UCCU was not ever required to pursue a court action.

[47] The Debenture was discussed at length in the Tenth Report. The Receiver set out the negotiations between it and Jokey for the court’s review. The Receiver also noted that any settlement with Jokey had to be approved by Jokey’s lender, who benefitted from a postponement agreement entered into by Huron prior to the receivership with respect to the Debenture. No approval from that lender was forthcoming.

[48] As noted earlier, by order dated November 12, 2013, the Receiver was discharged. However, the discharge order authorized the Receiver to release its interest in the Jokey Debenture to UCCU.

[49] I pause here to note that I agree with the position of Environmental—the Receiver did not own the Debenture (see: 1231640 Ontario Inc. (Re), 2007 ONCA 810, at para. 22, 27-28). Thus, the Receiver could not transmit ownership in the Debenture to UCCU.

[50] However, Libro’s debt had not yet been fully recouped. Libro (UCCU) continued to have a security interest in the Debenture pursuant to the GSA after the Receiver was discharged. In my view, Libro continued to enjoy the rights and remedies afforded to it pursuant to the GSA or the PPSA. It is clear from the record that counsel for Libro monitored Jokey’s annual income filings to see if it triggered any income participation under the Debenture.

[51] Libro, or its predecessors, failed to note the lapse of the PPSA registration against Huron. Thus, its security interest became unperfected during a period of time until a new Financing Change Statement was registered against Huron. That occurred on February 8, 2017. Thus, any person who acquired any rights in the Debenture during the period in which Libro’s security interest was unperfected would take priority due to the operation of s. 30(6) of the PPSA.

[52] From the evidence, it is clear that Environmental had commenced its action as against Huron prior to the expiration of the PPSA registration. However, judgment was not obtained until November 14, 2018, after the security interest had been re-perfected. A lawsuit does not create an enforceable interest until a judgment is obtained. By the time that Environmental obtained its judgment, Libro had re-perfected its security interest. Pursuant to s. 30(6) of the PPSA, the perfection was therefore deemed to have been continuous since the initial registration in 2004. The result was that Environmental did not obtain priority over Libro’s security interest during the requisite period.

[53] Environmental argues that Huron was noted in default during the period in which the PPSA registration had lapsed and at that time was deemed to admit the allegations contained in the Statement of Claim. I accept that being deemed to admit the allegations is a consequence of being noted in default. I do not, however, accept that Environmental had obtained an interest in the assets of Huron until it obtained judgment. It did not acquire any competing interest up until the time it became a judgment creditor.

[54] Accordingly, in accordance with s. 20(1)(a)(ii) of the PPSA, and the decisions in Globealive, supra, Access Advertising, supra and Friendly, supra, unless I am persuaded by any of Environmental’s arguments, I find that Libro’s perfected security interest had priority over Environmental’s garnishment.

Environmental’s Arguments:

(i) Equity:

[55] Environmental relies on the garnishment scheme created by rule 60.08 of the Rules of Civil Procedure. It also relies upon the Creditors’ Relief Act, 2010, S.O. 2010, c. 16, Sch 4 (as amended) which sets out the process by which execution creditors’ claims are proportionately paid out by the sheriff upon garnishment proceedings being conducted.

[56] The relevant provisions of rule 60.08 provide as follows:

60.08(1) A creditor under an order for the payment or recovery of money may enforce it by garnishment of debts payable to the debtor by other persons.

(11) The garnishee is liable to pay to the sheriff any debt of the garnishee to the debtor, up to the amount shown in the notice of garnishment or supplementary notice of garnishment, less $10 for the cost of making each payment, within ten days after service on the garnishee or ten days after the debt becomes payable, whichever is later.

(12) For the purposes of subrule (11), a debt of the garnishee to the debtor includes,

(a) a debt payable at the time the notice of garnishment is served; and

(b) a debt payable (whether absolutely or on the fulfilment of a condition) after the notice is served and within six years after it is issued.

[57] Environmental argues that garnishment is an equitable remedy (see: 20 Toronto Street Holdings Ltd. v. Coffee, Tea or Me Bakeries Inc., 2001 CanLII 28048 (ON SC)). Environmental also cites International Union of Painters and Allied Trades, Local 200 v. S & S Glass and Aluminum (1993) Ltd., 2004 CanLII 12611 (ON CA) for the same proposition. In the latter case, Gillese J.A. noted that rule 60.08 should be applied in an equitable manner, at paragraph 27. Respectfully, however, Gillese J.A. was not relying upon equity to alter priorities as between creditors, particularly secured creditors. She was simply, in my view, indicating that the subrule ought not to be applied in an “unduly technical approach” so as to permit a garnishee to avoid compliance with the rule.

[58] It might seem easy to determine that equity favours David when David comes up against Goliath. Undoubtedly, Libro is better able to absorb an unfulfilled debt than Environmental. Respectfully, the banking industry cannot be subjected to such notions of fairness, or lenders would not lend. So long as a creditor with a security interest perfects its interest in accordance with the PPSA, its priority prevails in accordance with s. 20. I do not take the discussions of equity in 20 Toronto Street Holdings, supra, or S & S Glass, supra, to suggest that equity can cause a redistribution of the proceeds from garnishment in the face of a duly perfected security interest. As noted by Braid J., in House v. Baird, 2019 ONSC 1712, at paras. 44-45 “[t]he maxim ‘equity follows the law’ applies such that in the face of clear statutory provisions, equitable remedies cannot apply.

[59] In fact, section 72 of the PPSA does allow for the application of principles of law and equity, but only so long as they are not inconsistent with the provisions of the PPSA. I reject this argument.

(ii) The Limitations Act, 2002:

[60] As noted, Environmental relies on the expiration of the applicable limitation period under the Limitations Act, 2002 as barring Libro’s claim for relief. Under s. 2 of the Limitations Act, 2002, the Act applies to claims pursued in court proceedings other than a list of enumerated claims. “Claims” is defined to mean a claim to remedy an injury, loss or damage that occurred as a result of an act or omission.

[61] The basic limitation period is two years from the date on which the claim was discovered. Under s. 5, a claim is discovered on the earlier of the date on which the person with the claim first knew that the loss had occurred, that the loss was caused by an act or omission, that the person against whom the claim is made was responsible for the act or omission and that a proceeding would be an appropriate means to seek to remedy the loss.

[62] Subsection 5(3) makes it clear that in relation to a demand obligation, the limitation period commences on the first day on which there was a failure to perform the obligation once a demand for performance was made.

[63] It is important to point out that the expiration of a limitation period does not extinguish a party’s substantive rights, but merely acts procedurally to prevent a party from asserting those rights through court proceedings. Typically, courts require a defendant to assert that the limitation period has expired. The failure to plead the limitation period is fatal to relying upon it.

[64] I note that the GSA provided a security interest in all existing and future indebtedness. Further, under the section of the GSA addressing Receivables, the GSA granted a security interest in all debts including those that may “at any time hereafter” be due and owing. In light of that language, it seems anomalous that the secured creditor’s security interest in the Debenture could be extinguished before it ever became realizable.

[65] Environmental argues that the order discharging the receiver in 2013 terminated the proceedings. Environmental relies upon West Face Capital Inc. v. Chieftain Metals Inc., 2020 ONSC 5161, a decision of Morawetz C.J. That case involved a court appointed receiver of the assets, undertakings and property of Chieftain Metals. At issue was whether the order discharging the receiver should include a provision requiring West Face to bring a motion to seek an order for a new receiver within two years. Environmental argues that the case stands for the proposition that the termination of a receivership proceedings triggers the requirement for a new receivership proceeding. In its submission, UCCU had to reserve its right within the order to initiate a second receivership proceeding, failing which it would be out of time and prevented from taking further action.

[66] In my view, that case does not assist Environmental. The issue before Chief Justice Morawetz was whether the court had the jurisdiction to reappoint a receiver in appropriate circumstances. He states at para. 30, as follows:

[30] In my view, the court does have the jurisdiction to reappoint a receiver in appropriate circumstances. The question is whether I should exercise my discretion to include a provision in the Revised Discharge Order that could result, at some future date, in a motion for the appointment or reappointment of the receiver.

Later, Morawetz C.J. describes, in para. 38, that:

“…West Face does not want a termination of the Receivership Proceedings. It is conceivable that there may be limitation period consequences to West Face if this course of action is implemented and West Face wanted to initiate a second receivership proceeding.”

(my emphasis)

[67] Thus, Morawetz C.J. actually held that the court can reappoint a receiver in appropriate circumstances, and he did not hold that in order to do so, the court had to specifically provide in the order for reappointment. He was simply asked to impose a time limit when the request for the reappointment for a receiver could be made so that the other parties would not be held hostage forever while West Face attempted to find a buyer for the project in question.

[68] At best, Chief Justice Morawetz contemplated that there could be a limitation period issue. He did not, in my view, hold that steps had to be taken within two years or West Face would necessarily be out of time. Ultimately, Morawetz C.J. included a provision permitting West Face to bring a motion to seek the re-appointment of a receiver in these proceedings within two years. Note, that if West Face was going to be prima facie barred by the passage of a limitation period, then there would have been no need to impose a time limit on West Face’s ability to bring a motion to request the re-appointment of the Receiver.

[69] Furthermore, Environmental’s argument ignores the fact that the discharge order in the case before me specifically carved out an ongoing interest in the Debenture--a security interest still governed by the GSA and the PPSA. In my view, as noted, the GSA has still not expired. The PPSA provides that the remedies provided in Part V are cumulative. A second receivership is also not the only avenue available to Libro to pursue the Debenture upon its maturity. Indeed, it has done so in the absence of the re-appointment of a receiver.

[70] I do not accept that the West Face case imposes an obligation upon a secured creditor on the discharge of the receiver to include a provision in the discharge order for the re-appointment of a receiver.

[71] Environmental argues that the two-year limitation under the Limitations Act, 2002 applies. Libro argues that the ten-year limitation period under the Real Property Limitations Act, R.S.O. 1990, c. L. 15 (“RPLA”) governs.

[72] Subsection 2(1)(a) of the Limitations Act, 2002, provides that the Limitations Act, 2002 does not apply to proceedings to which the RPLA applies. The RPLA applies to actions about claims involving real property. Determining when the RPLA applies was recently addressed by the Ontario Court of Appeal in Beniuk v. Leamington (Municipality), 2020 ONCA 238. Therein the Court described the types of cases in which the RPLA is intended to apply, as follows:

[51] See, also, Metropolitan Toronto Condominium Corp. No. 1067 v. L. Chung Development Co., [2012] O.J. No. 5684, 2012 ONCA 845 (C.A.), at para. 7, where this court again emphasized that actions for damages are not encompassed by the RPLA; Toronto Standard Condominium Corp. No. 1487 v. Market Lofts Inc., [2015] O.J. No. 815, 2015 ONSC 1067, 53 R.P.R. (5th) 67 (S.C.J.), at paras. 53-54, where Perell J. clarified, after citing his previous decision in Equitable Trust, that the incidental involvement of land or real property in an action does not mean that the RPLA applies; Conde v. Ripley (2015), 125 O.R. (3d) 689, [2015] O.J. No. 2627, 2015 ONSC 3342, 57 R.P.R. (5th) 146 (S.C.J.), at paras. 41-44; and Stravino v. Buttinelli, [2015] O.J. No. 1358, 2015 ONSC 1768, 53 R.P.R. (5th) 275 (S.C.J.), at paras. 63-66, both of which considered whether an action under s. 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F. 29 counted as an “action to recover land” under s. 4 of the RPLA and reiterated that actions to recover land generally seek a property interest and involve property rights; Harvey, para. 51, where this court considered the meaning of “money to be laid out in the purchase of land” and, in the course of doing so, emphasized the difference between claims for damages and claims covered by the RPLA; and finally, McConnell, where this court held that a constructive trust claim, based in unjust enrichment, was an action to recover land under s. 4 of the RPLA because it was a claim for a share of property.

[73] The loans initially made by Heartland to Huron were secured by a mortgage. However, during the receivership, the mortgaged properties were sold under power of sale, leaving the Debenture as the only collateral left for Libro to lay claim to. Although the Debenture itself was connected to land, this is not a proceeding on the Debenture, but a proceeding for the proceeds of the Debenture used to secure the debt.

[74] I reiterate that the Limitations Act, 2002 specifically applies to demand obligations, in section 5(3), which provides as follows:

5 (3) For the purposes of subclause (1)(a)(i), the day on which injury, loss or damage occurs in relation to a demand obligation is the first day on which there is a failure to perform the obligation, once a demand for the performance is made.

[75] In my opinion, the RPLA does not apply here as the loss was in relation to a demand obligation and this case does not involve an “action to recover land”.

[76] That does not end the analysis, however. As noted previously, the Limitations Act, 2002 applies to “claims pursued in court proceedings” and provides that a “proceeding” shall not be commenced in respect of a claim after the second anniversary date of the day on which the claim was discovered. Importantly, the term “proceedings” is not defined within the Limitations Act, 2002.

[77] In the Rules of Civil Procedure, for example, a “proceeding” means an action or application.

[78] Nortel Networks Corporation (Re), 2010 ONSC 1304, another case decided by Morawetz C.J., dealt with a stay of proceedings under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”). In that context, he reviewed the definition of “proceeding”, stating as follows in paragraphs 37-39:

[37] In Re Woodward’s Ltd., (1993) 17 C.B.R. (3d) 236 (B.C.S.C.), the court found that “if a step must be taken vis-à-vis the insolvent company” for the creditor to enforce its rights, that step was a proceeding (at para. 27). The B.C. court looked to Black’s Law Dictionary’s definition of “proceeding” to base its finding:

“proceeding” may refer not only to a complete remedy but also to a mere procedural step that is part of a larger action or special proceeding.

[38] In Meridian Development Inc. v. Toronto Dominion Bank, (1984) 1984 CanLII 1176 (AB KB), 52 C.B.R. (N.S.) 109 (Alta. A.B.), Wachowich J. provided a helpful analysis of the breadth of the definition of “proceeding” at para. 27:

…I am mindful of the wide scope of action which Parliament intended for this section of the Act. To narrow the interpretation of “proceeding” could lessen the ability of a court to restrain a creditor from acting to prejudice an eventual arrangement in the interim when other creditors are being consulted. As I indicated earlier, it is necessary to give this section a wide interpretation in order to ensure its effectiveness. I hesitate therefore to restrict the term “proceedings” to those necessarily involving a court or court official, because there are situations in which to do so would allow non-judicial proceedings to go against the creditor which would effectively prejudice other creditors and make effective arrangement impossible. The restriction could thus defeat the purpose of the Act…(i)n the absence of a clear indication from Parliament of an intention to restrict “proceedings” to “proceedings which involve either a court or court official”, I cannot find that the term should be so restricted. Had Parliament intended to so restrict the term, it would have been easy to qualify it by saying for instance “proceedings before a court or tribunal”.

[39] It has also been established that the term “proceeding” may refer to any procedural step that is part of a larger proceeding. Delivery of a certificate to the debtor company as a prerequisite to drawing on a letter of credit has been stayed as a proceeding against a CCAA debtor: see Re Woodward’s Ltd., supra, at paras. 26-27.

[79] Thus, Chief Justice Morawetz held that the stay of proceedings applied to the issuance of a notice by the UK Pension Trustee despite the fact that it was not a formal judicial proceeding.

[80] Given that there is no definition of “proceeding” contained in the Limitations Act, 2002, I find that I must be cautious about importing definitions from other contexts. In any event, it is my view that the same result occurs whether a “proceeding” is narrowly defined to be an action or application, for example, or broadly to encompass the appointment of a receiver, for example.

[81] I reiterate that Part V of the PPSA grants the creditor broad remedies in enforcing its security interest. One such remedy is to sue on the debt and obtain a judgment. In that context, in my view, the Limitations Act, 2002 would prevent an action started more than two years after the demand. Thus, in Leatherman v. 0969708 B.C. Ltd., 2018 BCCA 33, a case relied upon by Environmental, where the creditor commenced an action more than two years after the default, it was out of time.

[82] But an action before the court is only one of the manners in which security can be enforced by a secured creditor. In the case before me, no action has ever been commenced on the debt. Thus, if “proceedings” were to be defined as limited to actions, then the Limitations Act, 2002 would not apply to this case because there are no “claims pursued in court proceedings” underpinning its application. That would mean that any of the “non-action” remedies available to a secured creditor under Part V of the PPSA would not be governed by the Limitations Act, 2002.

[83] This case is currently being decided pursuant to rule 60.08(16) which is a motion, not an action. Thus, if “proceeding” is defined as including only actions and applications, Libro cannot be said to be out of time. Since a limitation period does not take away a party’s substantive rights, but only procedurally prevents the party from bringing an action (if “proceeding” were narrowly construed), I would find that Libro is not barred by the Limitations Act, 2002 from obtaining relief on this motion.

[84] Alternatively, if a broader definition of “proceedings” applies, then the appointment of the receiver occurred within two years of the demand and thus, was not statute barred on its face by the provisions of the Limitations Act, 2002. The demand letter from Mr. Swift to Huron was dated November 26, 2008. The order appointing the receiver, obtained by motion, is dated March 31, 2009.

[85] Section 58 of the PPSA provides that a secured creditor’s rights and remedies are cumulative. A secured creditor is not limited to pursuing only one remedy. I would also suggest that a secured creditor is not prevented from pursuing the same remedy more than once, so long as it is timely.

[86] In this case, I would apply s. 5(1)(a)(iv) of the Limitations Act, 2002 to find that any steps taken to enforce its security in the Debenture were taken within the applicable limitation period. I do not accept that Libro, still holding a valid security interest, deemed to have been continuously perfected, in the Debenture, was required to commence any proceedings in respect of that Debenture before it matured. Until it matured, Libro could not possibly recover on the Debenture. I find that none of the remedies available to Libro under Part V of the PPSA could be said to be an “appropriate means” to make a claim on the Debenture prior to its maturation. I find that the two-year limitation period in respect of the Debenture commenced when it matured and did not expire prior to the within motion being brought.

[87] This finding is reinforced by the fact that the order discharging the receiver intentionally and specifically preserved UCCU’s security interest in the Debenture.

[88] I prefer the broader definition of “proceedings” and would ground my decision on the latter basis I have just described. But even narrowly construing “proceeding”, I do not believe that Libro’s current claim on the Debenture is statute barred and I so find.

(iii) Unjust Enrichment:

[89] Environmental’s final argument is that permitting Libro to have priority over the proceeds from the Debenture would unjustly enrich Libro at the expense of Environmental. Environmental argues that its assets, in the hands of Huron, were used to pay off the debts owing to UCCU. While conceding that none of Libro or its predecessors have acted improperly, Environmental asserts that Huron diverted monies held in trust pursuant to the Construction Lien Act to them.

[90] Unjust enrichment has three components. There must be an enrichment, a corresponding deprivation and the absence of any juristic reason for the enrichment.

[91] Whether there was enrichment of a defendant, and a corresponding deprivation of a plaintiff requires a straightforward economic approach. It must be shown that something of value passed from the latter to the former. In my view, that cannot be shown in this case. Heartland loaned funds to Huron before Environmental provided the materials and services which gave rise to its trust claim. Heartland, as a secured creditor, was entitled to repayment, in priority to all interests unless they had been perfected in priority to Heartland’s security interest. In my view, repayment would not be considered as enrichment. Furthermore, Huron defaulted such that there was no repayment.

[92] I do not view Huron’s failure to pay Environmental for its services and/or material as a corresponding deprivation that in any way relates to Heartland. If it could be said that Heartland was somehow enriched, there is no causal connection between that enrichment and Environmental’s loss.

[93] It was Huron that was enriched and Environmental’s corresponding deprivation related to that enrichment. I would not find the requisite enrichment or corresponding deprivation in this case.

[94] Further, even if there was enrichment and a corresponding deprivation, there was a juristic reason for it. Libro relied upon Moore v. Sweet, 2017 ONCA 182, at para. 92, where it was described that there is a two-step analysis involved in the juristic reason assessment. Blair J.A. stated as follows:

[92] …There is no dispute that “[a]t the heart of the doctrine of unjust enrichment lies the notion of restoring a benefit which justice does not permit one to retain”: Kerr, at para. 31, citing Peel, at p. 788 S.C.R. Courts, however, have been careful to guard against the remedial constructive trust turning into a completely unprincipled, open-ended remedy, the application of which depends on a particular judge’s subjective view of what is unjust or goes against good conscience—or, to put it in its classic formulation, that is dependent “upon the length of the Chancellor’s foot”. In Canada, the Supreme Court has developed the “absence of juristic reason” as a mechanism for instilling a principled approach to the remedy.

[95] Thus, the two-step analysis first requires the plaintiff (Environmental in this case) to show that no juristic reason from an established category exists to deny recovery. In the second stage, the defendant can show that there is another reason to deny recovery.

[96] I note that Moore v. Sweet was reversed by the Supreme Court of Canada (Moore v. Sweet, 2018 SCC 52), a fact to which neither party alerted me. However, the same two-step analysis with respect to juristic reason was endorsed by the higher court.

[97] Environmental cannot pass the first of the two steps of the analysis. Heartland was being repaid pursuant to a perfected security interest that would enjoy priority over Environmental’s claims under the statutory provisions of the PPSA. A secured creditor with a perfected security interest takes priority over all other creditors before whom their interest was registered. When Environmental provided the materials and services to Huron, the PPSA registration had been done and was searchable. The requisite notice via the registration was available to all individuals that might do business with Huron that there was a superior interest in the event of Huron being unable to pay its creditors.

[98] The existence of a statutory regime establishing priorities between a perfected security interest and other creditors is an established category which would constitute a juristic reason. Thus, I find that the prior registration of Libro’s security interest pursuant to the PPSA is a juristic reason for it to receive the proceeds from the collateral.

[99] I reject that Libro, or its predecessors, has been unjustly enriched.

Disposition:

[100] I recognize that Environmental has an unpaid debt owed to it by Huron. So does Libro. Both creditors were blameless here. However, the PPSA represents a legislative choice that so long as a secured creditor perfects its security interest, it has the superior claim to an execution creditor.

[101] Accordingly, I find as follows:

(a) Libro is an “interested party” pursuant to Rule 60.08 (16) of the Rules of Civil Procedure and has standing to bring this motion;

(b) Libro had a perfected security interest with respect to the Debenture and as such, its claim takes priority over Environmental’s claim as an execution creditor; and

(c) Libro’s claim is not barred by any applicable limitation period.

[102] Therefore, the funds currently being held by the Sheriff shall be paid to Libro pursuant to its perfected security interest.

[103] Should the parties not be able to resolve the issue of costs, Libro shall serve and file written submissions through the Stratford trial coordinator no later than February 10, 2023. Those submissions shall be no longer than three pages, double spaced, not including any relevant attachments. Environmental shall have until February 24, 2023 to file responding submissions, within the same parameters.

Order accordingly.

Justice Spencer Nicholson

Date: January 16, 2023