Canada: Court Of Appeal Clarifies Scope Of Vesting Orders To Extinguish Interests Against Land; Royalty Interests May Be Protected

Last Updated: July 14 2019
Article by Caroline Descours, Joe Latham, Alexandra Low and Kari MacKay

The Ontario Court of Appeal (the "ONCA") recently released its second and final decision in Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc., providing increased clarity on when interests in or against land can be extinguished through vesting orders in insolvency proceedings. The main question before the ONCA was whether a third party interest in land in the nature of a Gross Overriding Royalty ("GOR") can be extinguished by a vesting order granted in a receivership proceeding. The decision, which confirms that an insolvency court has jurisdiction to extinguish third party interests in land through vesting orders, sets out a "rigorous cascade analysis" for courts to use in making such a determination. Applying that analysis, the ONCA held that, given the nature of the GORs in question, the lower court erred in extinguishing them from title. However, the ONCA did not grant the appeal because it was out of time.


In December 2012, Ressources Dianor Inc./Dianor Resources Inc. ("Dianor") ceased operations, and on August 20, 2015, Richter Advisory Group Inc. was appointed by the Ontario Superior Court (Commercial List) as receiver of the assets, undertakings, and properties of Dianor (the "Receiver"). The receivership application was brought by Third Eye Capital Corporation ("Third Eye"), Dianor's secured creditor, who was owed approximately C$5.5 million. Dianor's main assets were mining claims located in Ontario and Quebec, which included agreements that provided for the payment of GORs for diamonds, metals, and minerals in favour of 2350614 Ontario Inc. (the "Royalty Holder"). Notices of the agreements granting the GORs were registered on title to both the surface rights and the mining claims in favour of the Royalty Holder.

In October 2015, an order was made approving a process for the sale of Dianor's mining claims. Two bids were submitted to acquire Dianor's property, both of which were conditional on the GORs being terminated. The Receiver selected the bid made by Third Eye. On notice to the Royalty Holder and other impacted stakeholders, the Receiver sought Court approval of the sale to Third Eye and a vesting order extinguishing the GORs. The motion judge held that the GORs were not interests in land and granted an order that approved the sale and extinguished the GORs.

When the appeal was first heard in 2018, the ONCA held that the motion judge erred in determining that the GORs did not amount to interests in land; the ONCA held they did. The ONCA based their conclusion on the Supreme Court of Canada ("SCC") decision in Bank of Montreal v. Dynex Petroleum Ltd. (2002) ("Dynex"). In Dynex, the SCC held that, for a royalty to be considered an interest in land, a two-part test must be satisfied, namely (i) the language used in describing the interest must be sufficiently precise to show that the parties intended the royalty to be a grant of an interest in land, and not simply a contractual right, and (ii) the interest out of which the royalty is carved must be itself an interest in land.

At the appeal in 2018, the ONCA had a number of questions which remained to be answered and requested further submissions and argument as to whether, and under what conditions and limitations, the court had jurisdiction to extinguish a third party interest in land through vesting orders. The recent ONCA decision followed those further submissions and argument.

ONCA's 2019 Decision

In the second part of its decision in the Dianor case, the ONCA concluded that, based upon a broad, liberal, and purposive interpretation of the Bankruptcy and Insolvency Act (the "BIA") receivership provisions, courts implicitly have jurisdiction to approve a sale proposed by a receiver. The ONCA further held that the broad wording of the BIA also confers jurisdiction to grant vesting orders in the insolvency context, and that the power to use vesting orders is incidental and ancillary to a receiver's power to sell.

The ONCA then provided a three-step framework for courts to apply in determining if a third party interest should be extinguished through a vesting order. First, the courts should assess the nature and strength of the interest proposed to be extinguished. The ONCA drew a distinction between a fee simple interest and a fixed monetary interest, noting that fee simple interests and some lesser interests in land, such as active easements, may not be extinguishable due to their nature. It would be more appropriate, the ONCA held, to extinguish an interest akin to a fixed monetary interest attached to real property, such as a mortgage or tax lien. Fundamental to this consideration is a determination of whether the owner of the interest has a reasonable expectation of the interest having a continuing nature which, absent consent, cannot be involuntarily extinguished in the ordinary course through a payment in lieu.

Second, it is important for courts to consider whether the parties consented to the vesting of the interest at the time of the sale approval before the court or through prior agreement. Freely negotiated agreements, the ONCA held, reflect the parties' express intention and should be given sufficient weight.

Third, if the first two considerations are inconclusive, courts can consider the equities, including (a) the prejudice, if any, to the third party interest holder; (b) whether the third party may be adequately compensated for its interest from the sale proceeds; (c) whether, based on evidence of value, there is equity in the property; and (d) whether the parties are acting in good faith. The ONCA noted that this is not an exhaustive list and there may be other factors that are relevant to the analysis.

In the case at hand, the ONCA found the Royalty Holder's GOR was more than a fixed monetary interest that attached to the property; they were, in substance, an interest in a continuing and inherent feature of the property. Although the GOR, like a fee simple interest, is capable of being valued at a point in time, this did not transform the substance of the interests into one that is concerned with a fixed monetary sum rather than an element of the property itself. The interest represented by the GOR is an ownership in the product of the mining claim, either payable by a share of the physical product or a share of revenues.

It was also clear the Royalty Holder had not consented to the vesting of its interests and that no agreement allowing for any competing priority existed. The ONCA did not need to consider the equities because the first and second parts of the analysis were conclusive. On these bases, the ONCA found the motion judge erred in granting an order extinguishing the Royalty Holder's rights in the GORs.

Ultimately, however, the ONCA found the Royalty Holder had been aware for weeks of the desire to vest out the GORs and that it neglected to properly preserve its rights, submitting its appeal too late, and would not set aside the motion judge's order.

Implications of the Decision

Before the ONCA's decision in this case, courts have exercised their inherent jurisdiction, looking at the facts and equities of the case, to determine in each instance whether to grant the requested vesting of assets to extinguish third party interests against land, including royalty interests. This resulted in a patchwork of case law. This ONCA decision now provides courts with a framework for making such determinations and provides comfort for holders of interests in land that there are principles which limit and guide a court's ability to extinguish those rights.

This case will be of particular interest to holders of royalty interests in the mining sector, where the use of royalties is common practice. Based on the principles set out in this decision, stakeholders in the mining sector should bear in mind the following when dealing with royalty interests:

  • Parties should be careful to clearly construct the documents creating and governing royalty interests, to ensure that those agreements properly deal with their structure, their nature and their relative priorities. In particular, parties should be mindful of the role of implied consents to vesting, including in situations where a third party has subordinated its interest contractually.
  • Where a purchase offer mandates the extinguishment of royalty interests, parties should obtain expert evidence as to whether there is any value in the royalty interests and whether the proposed compensation for the royalty interest is adequate.
  • Where a royalty holder wishes to file an appeal, the holder should be mindful of statutory deadlines and filing requirements, as the courts may not offer leniency in this regard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions