Obtaining a judgment for damages is sometimes half the battle. Actually realizing on that judgment might turn into another long, drawn-out fight with no guarantee of success. In 1842752 Ontario Inc. v. Fortress Wismer 3-2011 Ltd. et al.,1 the Court of Appeal considered a judgment creditor's attempt to enforce its writ of seizure and sale against a debtor's beneficial interest in land. Interestingly, the judgment creditor did not seek to sell the debtor's beneficial interest. Instead, the judgment creditor sought declarations that the writ of seizure and sale applied to the registered owner of the lands and that the writ of seizure and sale had priority over advances made under a previously registered charge. The Court of Appeal was not convinced.

Background

Pace Developments (The Mark) Ltd. ("Pace Mark") is the registered owner of lands being developed as an 18-storey residential condominium. The lands are registered under the Land Titles Act.2

Pace Mark holds the lands under an unregistered trust agreement specifying that Fortress Wismer 3-2011 Ltd. ("Fortress Wismer") and two other entities are the beneficial owners of the lands as tenants in common. The trust agreement was unregistered because the Land Titles Act prohibits registration of notice of an express, implied or constructive trust. Fortress Wismer has a 35 percent beneficial interest in the lands.

In 2016, Pace Mark gave a construction financing charge to Firm Capital Mortgage Fund Inc. ("Firm Capital") and a further charge to another company.

In November 2017, 1842752 Ontario Inc. ("184") obtained a judgment against Fortress Wismer for payment of $100,000 plus interest and costs.

On January 30, 2018, 184 filed a writ of seizure and sale with the sheriff in the jurisdiction where the lands are located. 184 also gave Firm Capital actual notice of the writ of seizure and sale. 184 took the position that any subsequent advances under Firm Capital's charge would be subordinate to 184's writ. Not surprisingly, Firm Capital disagreed.

184 commenced an application and sought declarations that:

  1. 184's writ of seizure and sale against Fortress Wismer applies against or binds Pace Mark (the registered owner of the lands);
  2. 184's writ of seizure and sale may be executed against Pace Mark; and
  3. any advances made to Pace Mark from Firm Capital after January 30, 2018 rank subordinate to 184's interest.

The application judge held that 184 was not entitled to enforce its writ of seizure and sale against Pace Mark and was not entitled to priority over the construction financing provided by Firm Capital. 184 appealed.

The Appeal

The Court upheld the application judge's decision and found that neither the statutory authorities nor the case law supported 184's entitlement to the relief it sought.

The Writ of Seizure and Sale Does Not Apply Against, Bind, and Cannot be Executed Against Pace Mark

The Court confirmed that the Execution Act3 is a procedural statute that facilitates the collection of debts through the mechanisms contained in it. The Execution Act does not grant substantive rights to judgment creditors.

The Execution Act gives the sheriff the authority to seize and sell lands of an execution debtor subject to a writ of seizure and sale, including lands held in trust for the execution debtor. However, it does not include a mechanism to add the legal owner of a property in which a judgment debtor has an unregistered beneficial interest to a writ of seizure and sale against the judgment debtor.

Accordingly, 184's writ of seizure and sale is against Fortress Wismer, and Fortress Wismer only. At paragraph 36, the Court noted:

Assuming there was an available market, and subject to the terms of any co-tenancy agreement, the sheriff could conceivably sell [Fortress] Wismer's 35 percent beneficial interest in the lands. However, that fact does not make [184's] writ of seizure and sale binding on or enforceable against Pace Mark.

184 also relied upon the case Michaud v. Coreslab Structures (Ont.) Inc.4 to support its proposition that the writ of seizure and sale should apply against Pace Mark. Michaud states that an execution creditor of a registered owner subject to an unregistered trust agreement cannot sell the beneficial interest in lands because the registered owner does not own it. 184 argued that the corollary should also be true, and its writ of seizure and sale against Fortress Wismer should be binding on and enforceable against Pace Mark.

The Court disagreed. An execution creditor stands in no better position than the debtor, and lands sold at the request of an execution creditor are sold subject to the charges, liens and equities to which they were subject in the hands of the debtor. Accordingly, 184's writ of seizure and sale only gives it the entitlement to have the sheriff seize and sell whatever Fortress Wismer's interest in the lands may be.

Any Advances Made to Pace Mark from Firm Capital After January 30, 2018 Are Not Subordinate to 184's Interest

184 argued that the writ of seizure and sale would have priority over subsequent advances under the Firm Capital charge if Firm Capital had actual notice of the writ of seizure and sale, pursuant to section 93(4) of the Land Titles Act. 184 stated that it had provided Firm Capital with actual notice.5

Again, the Court disagreed. Section 93(4) of the Land Titles Act reads as follows:

A registered charge is, as against the chargor, the heirs, executors, administrators, estate trustees and assigns of the chargor and every other person claiming by, through or under the chargor, a security upon the land thereby charged to the extent of the money or money's worth actually advanced or supplied under the charge, not exceeding the amount for which the charge is expressed to be a security, although the money or money's worth, or some part thereof, was advanced or supplied after the registration of a transfer, charge or other instrument affecting the land charged, executed by the chargor, or the heirs, executors, administrators or estate trustees of the chargor and registered subsequently to the first-mentioned chargeunless, before advancing or supplying the money or money's worth, the registered owner of the first-mentioned charge had actual notice of the execution and registration of such transfer, charge or other instrumentand the registration of such transfer, charge or other instrument after the registration of the first-mentioned charge does not constitute actual notice.

[Emphasis added.]

The Court held that section 93(4) does not create any priorities over a prior registered charge for an execution creditor. Instead, it discusses the priority of advances made under a previously registered charge following registration of a further transfer, charge or other instrument registered by the chargor. A writ of seizure and sale does not fall within that section of the Land Titles Act.

Additionally, section 72(1) of the Land Titles Act states that only the parties to an instrument are deemed to have notice of it, unless the instrument is registered or entered in the appropriate records. The Court stated that "[a]bsent such registration or entry, the notice [184] purported to give to Firm Capital was of no effect".6

Summary

The Court was satisfied that 184 was not entitled to the declarations that it sought. However, the Court was clear to add its own caveat at paragraph 47:

... these reasons should not be taken as expressing any opinion on how, if at all, a beneficial interest might be protected under the Land Titles Act or how, if at all, an execution creditor seeking to have a sheriff sell a beneficial interest under the Land Titles Act might protect its remedies under that Act.

This case illustrates the difficulties that judgment creditors may face when attempting to enforce a judgment against a debtor that does not hold assets in its own name. The cost of recovery can be high. In chasing recovery under a $100,000 judgment, 184 incurred its own legal fees and was required to pay costs of $16,300 (partial indemnity) to the respondents for the appeal.7

 Footnotes

1 2020 ONCA 250.

2 RSO 1990, c L.5.

3 RSO 1990, c E.24.

4 2012 ONSC 355.

5 184 also relied on a headnote from a 1932 Canadian case from an unknown court and a paragraph from the Canadian Encyclopedic Digest to support its claim for priority over subsequent advances by Firm Capital. The Court held that these sources lacked context and specificity and also were not relevant to the land titles system.

6 The method by which 184 gave Firm Capital actual notice of the writ of seizure and sale is not specified in the reasons of the Court.

7 The lower court decision is not available publicly online, but 184 may also have had to pay costs arising from the lower court decision to the respondents.

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