



COURT OF APPEAL FOR ONTARIO

CITATION: Stanbarr Services Limited v. Metropolis Properties
    Inc., 2018 ONCA 244

DATE: 20180314

DOCKET: C61872, C61878 and C61894

Doherty, Pepall and Hourigan JJ.A.

DOCKET:
    C61872 and C61894

BETWEEN

Stanbarr
    Services Limited, Janodee Investments Ltd., Meadowshire

Investments
    Ltd., Regard Investments Ltd., 1563503 Ontario Limited,

Beaver
    Pond Investments Ltd., The Canada Trust Company,

Rita
    Rosenberg and 527540 Ontario Limited

Applicants (Respondents)

and

Metropolis
    Properties Inc., Ginkgo Mortgage Investment Corporation,

Canada
    Investment Corporation,
2413913 Ontario Limited
,

2421955
    Ontario Inc.
and
Sai Mohammed

Respondents (
Appellants
)

DOCKET: C61878

AND BETWEEN

Stanbarr
    Services Limited, Janodee Investments Ltd., Meadowshire

Investments
    Ltd., Regard Investments Ltd., 1563503 Ontario Limited,

Beaver
    Pond Investments Ltd., The Canada Trust Company,

Rita
    Rosenberg and 527540 Ontario Limited

Applicants (Appellants)

and

Metropolis
    Properties Inc.,
Ginkgo Mortgage Investment Corporation
,

Canada
    Investment Corporation,
2413913 Ontario Limited
,

2421955
    Ontario Inc. and Sai Mohammed

Respondents (
Respondents
)

Ronald G. Slaght and Danielle Glatt, for the appellant/respondent,
    2413913 Ontario Limited

Brian Belmont, for the appellants, 2421955 Ontario Inc.
    and Sai Mohammed

Stephen Schwartz, for the respondents/appellants,
    Stanbarr Services Limited et al

Philip Polster, for the respondent, Ginkgo Mortgage
    Investment Corporation

Heard: January 24 and January 25, 2018

On appeal from the judgment of Justice Wendy Matheson of
    the Superior Court of Justice, dated August 21, 2015, with reasons reported at
    2015 ONSC 5249 and with further reasons dated February 22, 2016, reported at
    2016 ONSC 1258.

Hourigan J.A.:

[1]

These appeals arise from the exercise of a power of sale by a first
    mortgagee on a commercial/residential property. At issue is whether the
    purchaser of the property had actual notice of a defect in the power of sale
    process and, if not, whether the purchaser can rely on the registration of its
    transfer. Also at issue is the impact of the defect on the rights of the post-sale
    mortgagees of the property.

[2]

For the reasons I detail below, I have concluded that the trial judge
    erred in law in finding that the purchaser had actual notice of the defect.
    Contrary to the trial judges finding, the purchaser is a
bona fide
purchaser for value without notice of the defect and holds good title to the
    property. I am also of the view that the trial judges analysis of the post-sale
    mortgagees rights was flawed because it relied on her erroneous finding of
    notice and proceeded based on jurisprudence that was inapplicable.

Facts

[3]

Canada Investment Corporation (CIC) was the first
    mortgagee on property owned by Metropolis Properties Inc. (Metropolis) municipally
    described as 91-93 Scollard Street, Toronto, Ontario (the Property). The
    mortgage was in default and CIC sought to sell the Property under its power of
    sale rights in its mortgage. At the time, there were eleven subsequent
    mortgages registered against the Property. Those subsequent mortgages were held
    by the nine applicants in the proceeding below, either as sole mortgagees or
    along with other applicants (the pre-sale mortgagees).
[1]

[4]

The appellant 2413913 Ontario Inc. (241 Ontario)
    purchased the Property pursuant to CICs power of sale. The appellant Sai
    Mohammed is a director of 241 Ontario. The sale closed on June 6, 2014. The pre-sale
    mortgagees argued that they had never received a notice of sale, as required by
    the
Mortgages Act
,

R.S.O. 1990, c. M.40, and that the sale was therefore invalid. In
    the proceedings below, the trial judge accepted that 241 Ontario was a
bona
    fide

purchaser for value of the Property. The
    issue was whether 241 Ontario was without notice that the sale was defective.

[5]

There was no dispute that CICs lawyer in the power of
    sale proceedings, Rasik Mehta, prepared a notice of sale dated November 28,
    2013. The notice of sale stated that the amount due under the CIC mortgage
    totaled $3,271,947.36  quadruple the amount secured under the mortgage when
    CIC acquired it by assignment approximately five months prior. In the
    proceedings below, CIC attempted to justify the amount in the notice of sale
    through expenditures for property management and maintenance stretching back to
    2009, years before the mortgage assignment. Those pre-assignment expenditures
    and the interest that accrued on them resulted in the bulk of the substantial
    increase in the amount said to be owing under the mortgage.

[6]

Jonathan Ricci acted as counsel to Mr. Mohammed and 241
    Ontario in the sale. Mr. Ricci was originally retained by Metropolis, the owner
    of the Property before the impugned sale. On May 2, 2014, Mr. Ricci sent an
    email to Metropolis litigation counsel indicating that he was acting for
    Metropolis in connection with a pending sale of the Property. Mr. Riccis email
    was forwarded to other counsel in a receivership proceeding regarding the
    Property. Within five days of sending that email, Mr. Ricci had terminated his
    retainer with Metropolis and accepted Mr. Mohammeds retainer for the sale. On
    May 16, 2014, Doug Bourassa, one of the counsel to the pre-sale mortgagees,
    sent an email to Mr. Ricci. This email was key to the trial judges conclusion
    that 241 Ontario had notice of a defect in the power of sale process. Mr.
    Bourassa wrote:

You provided an email to [Metropolis litigation
    counsel] dated May 2, 2014in which you advised that you are acting for
    Metropolis Properties, and that you were in the process of receiving mortgage
    statements from mortgagees and preparation of documentation for closing.



Please note that my clients have never
    received any notice of sale from the 1
st
ranking mortgagee [CIC]
Any attempt by the 1
st
mortgagee to sell under power of
    sale will be invalid. [Emphasis added.]

[7]

Mr. Ricci conveyed this information to Mr. Mohammed. Mr.
    Ricci also contacted Mr. Mehta to confirm that the notice of sale was properly
    sent to the pre-sale mortgagees. In response, Mr. Mehta provided Mr. Ricci with
    a copy of the notice of sale and registered mail documentation. Additionally,
    prior to closing, Mr. Ricci obtained a statutory declaration from Mr. Mehta
    confirming proper service of the notice of sale. 241 Ontario closed the
    transaction. Mr. Ricci testified that he did not reply to Mr. Bourassas email
    because it was not clear to him who Mr. Bourassa represented, and because he
    was no longer retained by Metropolis.

[8]

As part of the impugned sale, Ginkgo Mortgage Investment
    Corporation (Ginkgo) provided financing to 241 Ontario and took a first
    mortgage on the Property. Mr. Mohammed was also involved as a mortgagee, personally
    or in his role as director of 2421955 Ontario Inc. (242 Ontario), in several subsequent
    post-sale mortgages. Mr. Mohammed and 242 Ontario (the post-sale subsequent
    mortgagees) also appeal.

Decision Below

[9]

The case proceeded before the trial judge as a hybrid
    trial. In reasons dated August 21, 2015, she answered the four legal questions
    at issue as follows:

1.

Was CICs Notice of Sale Valid?

No. Despite
    the preparation of the notice of sale, the trial judge found that the
pre-sale mortgagees
were not served with it.
    She found that it was more probable than not that, while Mr. Mehta intended to
    serve the notice of sale, he inadvertently mailed the wrong documents to the
pre-sale mortgagees
. Therefore, CIC failed
    to comply with the statutory conditions regarding notice in the
Mortgages
    Act
. Further, the pre-assignment expenditures were
    improperly included in the amount due under CICs mortgage, so the notice of sale
    was also invalid for that reason.

2.

Was 241 Ontario a bona fide purchaser for value
    without notice of the invalidity of sale?

No. 241 Ontario cannot rely on the relief from strict compliance
    with the requirements of a power of sale proceeding contained in ss. 35 and 36
    of the
Mortgages Act
. It had actual notice of
    the invalidity of the sale. Further, it cannot restore itself to without
    notice status by making reasonable inquiries into the validity of the sale.
    Even if it could, 241 Ontario did not make reasonable inquiries.

3.

If the answer to Question 2 is no, are the mortgages
    registered subsequent to the purchase valid?

The
post-sale subsequent mortgagees
(not including Ginkgo) are deemed to have the same notice received
    by 241 Ontario and therefore do not have valid charges as against the
pre-sale mortgagees
. The validity of
    Ginkgos mortgage was to be determined in subsequent reasons, pending further
    submissions.

4.

If the answer to Question 3 is no, do Ginkgo and the
    post-sale subsequent mortgagees have an equitable subrogated interest if they
    advanced funds?

The
pre-sale mortgagees
agreed that since CIC received the benefit of the new mortgage
    advances, Ginkgo and the other
post-sale subsequent
    mortgagees
are entitled to an equitable subrogated
    interest in the Property. The
pre-sale mortgagees
argued that any charges in priority to their mortgages should not
    exceed the amount properly secured by the CIC mortgage at closing. Since that amount
    was in dispute, as were other related issues, this issue was left to be
    determined pending further submissions.

[10]

Following further submissions, in reasons dated February 22, 2016,
    the trial judge determined the following issue:

5.

Is Ginkgos first mortgage on the Property valid?

Yes, relying on
Lawrence v. Maple Trust Company
,
2007 ONCA 74
,
84 O.R. (3d) 94,

the trial judge found

that

241 Ontario

was an intermediate owner and Ginkgo
    was a deferred owner. Thus Ginkgo was a
bona fide

encumbrancer for value without notice.

[11]

In this court, 241 Ontario appeals the order that it is a
bona fide
purchaser for
    value with actual notice of the defect in the exercise of the power of sale and
    therefore did not obtain valid title to the Property. The
post-sale
    subsequent mortgagees appeal the order that their mortgages are invalid.
    Finally, the
pre-sale mortgagees appeal the order that
    Ginkgo has a valid mortgage.

Issues

[12]

The following issues are relevant for the determination of these
    appeals:

1.

Did the trial judge
err in
    applying the wrong test
for actual notice sufficient to
    defeat a registered interest under the
Land Titles Act,
R.S.O. 1990, c. L.5
?

2.

If the answer to issue 1 is yes, can 241 Ontario rely
    on its registration of the transfer?

3.

Did the trial judge err in her analysis of the validity
    of the mortgages registered by the post-sale subsequent mortgagees?

4.

Did the trial judge err in her analysis of the validity
    of the mortgage registered by Ginkgo?

Analysis

[13]

Before
    turning to the issues in this appeal, it is helpful to consider the principles
    that underlie the
Land Titles Act

and review how the legislation has been interpreted in the jurisprudenc
e
.
    Epstein J. (as she then was) described those principles in
Durrani v. Augier

(2000),

50 O.R. (3d) 353
(S.C.), a
t
    para. 42, referencing Marcia Neaves article,
"Indefeasibility
    of Title in the Canadian Context" (1976), 26 U.T.L.J. 173
:

The philosophy of a land titles system embodies three
    principles, namely, the mirror principle, where the register is a perfect
    mirror of the state of title; the curtain principle, which holds that a
    purchaser need not investigate the history of past dealings with the land, or
    search behind the title as depicted on the register; and the insurance
    principle, where the state guarantees the accuracy of the register and
    compensates any person who suffers loss as the result of an inaccuracy. These
    principles form the doctrine of indefeasibility of title and [are] the essence
    of the land titles system

[14]

There
    is no question that fraud has always been recognized as an exception to the
    mirror principle:
Waimiha Sawmilling Company Limited v. Waione Timber
    Company Limited
, [1926] A.C. 101 (P.C.).

It was less clear whether
    notice of a defect in title not involving fraud could serve to defeat the
    interest of a registered owner or encumbrancer. That question was answered in
    the seminal case of
United Trust v. Dominion
    Stores
,

[1977] 2 S.C.R. 915
.
There the respondent owner was seeking to take
    title to a property free from an unregistered lease. The majority of the
    Supreme Court rejected the respondents submission that,
under the Ontario
Land Titles Act
,
apart from fraud, actual notice of a non-registered
    instrument is ineffective to put the burden of the encumbrance resulting
    therefrom upon a purchaser for value (at p. 948). In other words, the majority
    held that actual notice of an unregistered instrument could defeat the interest
    of a registered owner or encumbrancer even in the absence of fraud.

[15]

Spence J., writing for the majority, reasoned that the
    doctrine of actual notice has been well established in our law since the
    beginning of equity and that, such a cardinal principle of property law cannot
    be considered to have been abrogated unless the legislative enactment is in the
    clearest and most unequivocal of terms (at p. 952). Spence J. adopted the
    analysis of Arnup J.A. in the Court of Appeals decision in that case and
    found, the law of real property should not be found to have been altered by
    the Legislature except where such alteration had been made by clear or
    appropriate words (at p. 957).

[16]

The
    next case of interest is
Household Realty
    Corp. Ltd. v. Liu

(2005),

205 O.A.C. 141 (C.A.).

There,
    the appellants wife forged a power of attorney and used it to obtain three
    mortgages registered against their joint residence, unbeknownst to the
    appellant. The appellants submission that the mortgages were void was rejected
    on the motion below. This court dismissed the appeal, affirming the motion
    judges finding that the mortgagees were

bona fide

encumbrancers for value without notice of
    the fraud. In those circumstances, the court reasoned that while the mortgages
    were void at common law, they became valid upon registration.

[17]

The
    result was that as between the innocent parties, being the appellant and the
    mortgagees, the appellants rights were inferior. This finding was consistent
    with the immediate indefeasibility theory. Central to this theory is that the
Land Titles Act
creates a system of title
    by registration, not a system of registration of title. Thus, once registered
    an instrument is effective. There was no exception to this rule because the
    mortgagees had no knowledge of the fraud.

[18]

This
    court revisited its decision in
Household
    Realty
in
Maple Trust
.
In that case, an
    imposter posing as the appellant homeowner entered into an agreement of
    purchase and sale for the appellants home with a confederate. The purchaser
    then obtained mortgage financing from the respondent and the sale closed. When
    the appellant discovered what had happened, she brought an application to set
    aside the fraudulent transfer and the registration of the respondents
    mortgage. The application judge set aside the transfer but refused to set aside
    the mortgage on the basis that he was bound by
Household Realty
. The issue for this court was as between the
    innocent homeowner and the innocent mortgagee, whose rights should be
    paramount.

[19]

The
    court in
Maple Trust
found that
Household Realty
was
    incorrectly decided and that the theory of deferred indefeasibility rather than
    immediate indefeasibility was more consistent with the
Land Titles Act
:

[67] The theory of deferred indefeasibility accords with the
    Act and must be taken into consideration in an analysis of s.155 and its
    relationship with other provisions in the
Act
.
    Under this theory, the party acquiring an interest in land from the party responsible
    for the fraud (the "intermediate owner") is vulnerable to a claim
    from the true owner because the intermediate owner had an opportunity to avoid
    the fraud. However, any subsequent purchaser or encumbrancer (the
    "deferred owner") has no such opportunity. Therefore, in accord with
    s. 78(4) and the theory of deferred indefeasibility, the deferred owner
    acquires an interest in the property that is good as against all the world.

[20]

The
    result was that Maple Trusts interest as an intermediate encumbrancer did not
    defeat the interest of the true owner.

[21]

Following
    the release of this courts decision in
Household
    Realty
,

the legislature amended the

Land Titles Act

with the express
    purpose of protecting innocent homeowners from losing their homes as a
    consequence of fraud. Those amendments will be set out below in the analysis of
    Issue 4. For present purposes, it is sufficient to note that as a result of the
    amendments, fraudulent instruments are an exception to the rule, embodied in s.
    78(4) of the
Land Titles Act
, that a registered instrument is effective
    according to its nature and intent, to create, transfer, charge or discharge an
    interest in land. Importantly, the court in
Maple Trust
made no
    reference to these amendments as they were not effective for registrations made
    prior to October 19, 2006, and the registration in that case took place in
    2005.

[22]

A
    question arises from the foregoing. Does actual notice of a non-fraudulent
    defect continue to operate to defeat the interest of a
bona fide
purchaser or encumbrancer for
    value who has notice of such defect?

[23]

On
    the one hand, it could be credibly argued that such notice is no longer
    operative to defeat registered interests. This argument would be premised on
    the notion that the legislature has effectively occupied the field with its
    post‑
Household Realty
amendments.
    One view of the amendments impact is that only in cases of fraud will the
    registered owners or encumbrancers interest be vulnerable and then only in accordance
    with the statutory scheme provided therein.

[24]

On
    the other hand, applying the reasoning of the majority in
United Dominion
,
    it could be argued that notice of non-fraudulent defects is a well-established
    doctrine in property law and it should not be deemed to have been abrogated
    absent the manifestation of a specific intention to do so by the legislature through
    clear wording in an amendment to the
Land Titles Act
.

[25]

As
    will be discussed below, it is unnecessary for me to resolve this issue because
    I am satisfied that the trial judge erred in finding that 241 Ontario had
    actual notice of the defect in title. For the purposes of the analysis below, I
    will assume that notice of a non-fraudulent defect continues to operate to
    defeat the interest of a
bona fide
purchaser or encumbrancer for value who has notice of such defect.

(1)

Notice of Defect

[26]

Because
    notice has been considered to be one of a limited number of exceptions to the
    mirror principle, it has been strictly construed. Our courts insist on actual
    notice of a defect. Actual knowledge means just that; the party must actually know
    about the defect. It is not sufficient that it has become aware of facts that
    may suggest it should make inquiries:
Rose
    v. Peterkin
(1885)
,
    13 S.C.R. 677, at pp. 694-695. Constructive knowledge is insufficient. Thus,
    the factual analysis in considering a notice argument is limited to a
    consideration of what the party knew, not what it could have known had it made
    inquiries.
[2]

[27]

The
    issue that the trial judge had to determine was whether 241 Ontario had actual
    knowledge of non-compliance with s. 33 of the
Mortgages Act
, which
    mandates the manner of notice of the exercise of a power of sale. The trial
    judge erred in two respects in her knowledge analysis. First, she conflated
    actual knowledge with constructive knowledge, when she stated:

[111] Actual notice is knowledge, not presumed knowledge. The
    test is whether the registered instrument holder was in receipt of such
    information as would cause a reasonable person to make inquiries:
Durrani

at para. 61, citing
Canadian Imperial Bank of Commerce v. Rockway
    Holdings Ltd.

(1996), 1996 CanLII 8007
    (ON SC),
29 O.R. (3d) 350 (Gen. Div.)
.

[112]  Here, 2413913 had actual notice. Its counsel received an
    email that stated flatly that no notice of sale had been received from CIC and
    any attempt by CIC to sell would be invalid. This was sufficient information to
    put 2413913 on inquiry.

[28]

With
    respect, these passages demonstrate an impermissible blurring of the concepts
    of actual and constructive knowledge. In determining whether a party has actual
    knowledge of a defect, it is unnecessary and unhelpful to consider whether they
    received sufficient information to put them on inquiry. That is because receipt
    of such information does not amount to actual knowledge:
Rose
, at pp.
    694-695. Therefore, whether the party received such information and what steps
    it took to investigate the situation is wholly irrelevant to the actual
    knowledge analysis.

[29]

I
    also observe that the trial judges reliance on the two cases cited in paragraph
    111 of her reasons is misplaced. In
Rockway
    Holdings
, the issue was whether a bank took a registered mortgage
    subject to a pre-existing licence agreement. There was no issue that the bank
    was aware of the agreement. The question was whether the bank, having actual
    knowledge of the agreement, was obliged to make inquiries regarding its precise
    terms. Similarly,
Durrani
does
    not support the proposition cited by the trial judge. That was a case where the
    court found that the purchasers agent had actual knowledge of a fraud. Neither
    case attenuates the test for actual knowledge.

[30]

The
    second error in the trial judges knowledge analysis was her failure to
    properly identify the alleged defect in the power of sale process. She found
    that 241 Ontario had actual notice, noting that [i]ts counsel received an
    email [from Mr. Bourassa] that stated flatly that no notice of sale had been
    received from CIC and any attempt by CIC to sell would be invalid (para. 112).

[31]

Section
    33 of the
Mortgages Act
provides
    for service of a notice of sale by personal service or by registered mail to
    the partys usual or last known address, or, where the last known address is
    shown on the registered instrument under which the party acquired an interest,
    to that address. Pursuant to s. 34, a notice delivered by mail is deemed to
    have been given on the day on which it is mailed.

[32]

It
    is not a defect in a power of sale process that a notice is not received by the
    intended recipient; it is only a defect if the notice was not sent in the
    prescribed manner:
Wood v. Bank of Nova
    Scotia
(1980), 29 O.R. (2d) 35 (C.A.), at pp. 36-37. The trial
    judge erred in finding that 241 Ontario had actual notice of the defect because
    of Mr. Bourassas email, which said that no notice had been received. 241
    Ontario had no actual knowledge of a defect, i.e. that the notice was not sent in
    the prescribed manner. In my view, therefore, the trial judge erred in finding
    that 241 Ontario had actual knowledge of a defect.

(2)

Validity of 241 Ontarios Title

[33]

Because
    241 Ontario did not have actual notice, it submits that it is entitled to rely
    upon the protections in the
Land Titles Act
as a
bona fide
purchaser for
    value without knowledge of a defect. Subsection 78(4) of Act provides:

78(4) When registered, an instrument shall be deemed
    to be embodied in the register and to be effective according to its nature and
    intent, and to create, transfer, charge or discharge, as the case requires, the
    land or estate or interest therein mentioned in the register.

[34]

More
    specific to power of sale proceedings are ss. 99(1) and 99(1.1) of the
Land Titles Act
, which provide as follows:

99(1) Subject to the
Mortgages
    Act

the registered owner of a registered charge that contains a power of
    sale, upon registering the evidence specified by the Director of Titles, may
    sell and transfer the interest in the land or any part thereof that is the
    subject of the charge in accordance with the terms of the power in the same
    manner as if the registered owner of the registered charge were the registered
    owner of the land to the extent of such interest therein.



99(1.1) The evidence
    specified by the Director of Titles under subsection (1) is conclusive evidence
    of compliance with Part III of the
Mortgages Act
and, where applicable,
    with Part II of that Act and, upon registration of a transfer under that
    subsection, is sufficient to give a good title to the purchaser.

[35]

In
    the present case, CIC registered a Transfer: Power of Sale that fully
    complied with the requirements of s. 99(1.1), as specified by the Director of
    Titles. Accordingly, 241 Ontario submits that it can rely upon the registration
    to give it good title.

[36]

The
    pre-sale mortgagees submit that the provisions of the
Mortgages Act
operate to prevent 241
    Ontario from obtaining good title. They argue that s. 99(1) of the
Land Titles Act
provides that it is
    subject to the
Mortgages Act

and

there has not been compliance with the strict requirements for a power of
    sale proceeding under that Act. They also submit that 241 Ontario cannot rely
    on ss. 35 and 36 of the
Mortgages Act
,
which provide relief from non-compliance
.

[37]

Sections
    35 and 36 fall under Part III of the
Mortgages Act
, which is entitled
    Notice of Exercising Power of Sale. Part III includes the notice requirements
    for exercising powers of sale. Section 35 deems compliance with Part III where
    certain statutory declarations are made, whereas s. 36 deals with situations
    where there has been professed compliance with Part III:

35

Subject to the
Land Titles Act
and
    except where an order is made under section 39, a document that contains all of
    the following is conclusive evidence of compliance with this Part and, where
    applicable, with Part II, and is sufficient to give a good title to the
    purchaser:

1.

A statutory declaration by the mortgagee or the mortgagees solicitor or
    agent as to default.

2.

A statutory declaration proving service, including production of the
    original or a notarial copy of the post office receipt of registration, if any.

3.

A statutory declaration by the mortgagee or the mortgagees solicitor
    that the sale complies with this Part and, where applicable, with Part II.

36

Where a notice has been given in professed
    compliance with this Part and, where applicable, with Part II, the title of the
    purchaser is not liable to be impeached on the ground that the provisions of
    this Part or, where applicable, Part II respecting default and the provisions
    of this Part respecting notice, have not been complied with, but any person
    damnified thereby has a remedy against the person exercising the power of sale.

[38]

The pre-sale mortgagees adopt the trial judges analysis regarding
    the unavailability of ss. 35 and 36. They argue that s. 35 is unavailable to
    241 Ontario because the statutory declaration that Mr. Ricci obtained did not
    include all of the required elements. It also cannot rely on s. 36 of the
Mortgages
    Act
, because no notice was given to them and 241 Ontario
    had actual knowledge of the defect in the power of sale proceedings. Therefore,
    they submit that because there has been non-compliance with the
Mortgages
    Act
, 241 Ontario cannot rely on s. 99(1) of the
Land
    Titles Act
.

[39]

I would not give effect to this submission. Accepting for the moment
    that the trial judge was correct in her analysis of ss. 35 and 36 of the
Mortgages Act
, that only
    means that those two sections are unavailable. 241 Ontario is prohibited from
    relying on Mr. Mehtas statutory declaration and it cannot rely on s. 36
    because notice was not actually given. However, none of the cases the trial
    judge relied upon in her analysis dealt with the
Land Titles Act
, nor the interplay between the
Land Titles Act

and the
Mortgages Act
: see
Re
    Botiuk and Collison

(1979), 26 O.R. 2d) 580 (C.A.);
Cranberry
    Cove Tower Inc. v. Monarch Trust Co.
(2003), 125 A.C.W.S.
    (3d) 1074 (Ont. S.C.), affd
(2005), 136 A.C.W.S. (3d)
    949 (Ont. C.A.);

Re Hyde and Besserer

(1971),
1 O.R. 434 (Co. Ct.).


[40]

On
    my reading,
ss. 35 and 36 of the
Mortgages Act

do not purport to limit 241 Ontarios other rights,
    including the right to rely on the registration of evidence referred to in
ss.
    99(1) and 99(1.1) of the
Land Titles Act
.

[41]

Under
    s. 99 of the
Land Titles Act
, a registered owner of a registered
    charge that contains a power of sale may sell and transfer the interest in land
    in accordance with the terms of the power of sale. The owner may do so
    [s]ubject to the
Mortgages Act
 and upon registering the evidence
    specified by the Director of Titles. According to subsection (1.1), such
    evidence is conclusive evidence of compliance with Part III of the
Mortgages
    Act
. Thus, while the registered owner must comply with the
Mortgages
    Act
, subsection (1.1) deems compliance with Part III of the
Act
.


[42]

Section
    35 of the
Mortgages Act
also deems there to be compliance with Part
    III if certain conditions are satisfied: except where an order is made under s.
    39, a document containing the requisite declarations is conclusive evidence of
    compliance with Part III. However, s. 35 is [s]ubject to the
Land Titles
    Act
 and so, to the extent of any conflict between s. 35 and s. 99, the
    latter would prevail.

[43]

Section
    36 of the
Mortgages Act
operates as a saving provision where a notice
    has been given in professed compliance with Part III. I see no conflict
    between s. 36 of the
Mortgages Act
and s. 99 of the
Land Titles
    Act
.
Reading the provisions harmoniously, where there has been
    technical non-compliance with Part III of the
Mortgages Act
, both s.
    36 and s. 99(1.1) may be available.

[44]

Accordingly,
    as I read
ss. 35 and 36 of the
Mortgages Act
,

they do not purport to limit 241 Ontarios right to rely on
    the registration of evidence referred to in
ss. 99(1) and 99(1.1) of the
Land Titles Act
.

[45]

In
    contrast to my interpretation, the pre-sale mortgagees argument regarding the
    interplay between the
Mortgages Act
and the
Land Titles Act
would lead to conflict between the two
    statutes. According to their argument, if a purchaser could not rely on ss. 35
    and 36 of the
Mortgages Act
, it would automatically be prohibited from
    relying on ss. 99(1) and 99(1.1) of the
Land Titles Act
.
The
    latter sections would be rendered inoperative. Such an interpretation is
    inconsistent with the statutory interpretation principle that statutes are to
    be read harmoniously, in a manner that avoids conflict:
Bell ExpressVu
    Limited Partnership v. Rex
, 2002 SCC 42, [2002] 2 S.C.R. 559, at para. 27.

[46]

Further,
    the pre-sale mortgagees submission makes little sense from a policy
    standpoint. There is no policy imperative that would suggest that the failure
    to produce a statutory declaration that complies with s. 35 of the
Mortgages
    Act
renders the registration of the evidence provided for under the
Land
    Titles Act
a nullity. Section 35 of the
Mortgages Act
is not
    mandatory. A mortgagee may choose to prepare a statutory declaration or elect
    not to do so as it sees fit. A purchaser may similarly rely on the statutory
    declaration or choose not to do so. There is also no reason why notice under s.
    36 of the
Mortgages Act
must be relied upon given the availability of
    s. 99(1) of the
Land Titles Act
.


[47]

The
    better interpretation of the interaction of ss. 35 and 36 of the
Mortgages
    Act
and s. 99(1) of the
Land Titles Act
is that the provisions
    provide complementary methods of protecting
bona fide
purchasers for
    value without notice of a defect in a power of sale proceeding. This
    interpretation is also consistent with the curtain principle underlying the
Land
    Titles Act
, which holds that a purchaser need not investigate the history
    of past dealings with the land or search behind the title as depicted on the
    register.

[48]

I
    therefore find that that 241 Ontario is
a
bona fide

purchaser
    for value without notice of the defect in the power of sale proceedings and
    holds good title to the Property.

(3)

Post-Sale Subsequent Mortgagees

[49]

With
    respect to the post-sale subsequent mortgagees, the trial judge found that they
    were all deemed to have the same knowledge that Mr. Mohammed obtained by reason
    of his position as a director of 241 Ontario and his involvement with the
    post-sale subsequent mortgagees. For the reasons set forth above, the trial
    judges knowledge analysis was flawed. Therefore, I would set aside her finding
    with respect to the validity of these mortgages and find the post-sale
    subsequent mortgagees have valid encumbrances.

(4)

Ginkgo Mortgage

[50]

In
    her second set of reasons, the trial judge reached the correct conclusion with
    respect to the validity of the Ginkgo mortgage but her legal analysis was
    flawed. Her conclusion relied on the doctrine of deferred indefeasibility as
    described in
Maple Trust
. Before her, the pre-sale mortgagees argued
    that under that doctrine, Ginkgo was an intermediate owner and was thus limited
    to an equitable charge subordinate to their mortgages. Ginkgo submitted that it
    was a deferred owner under the doctrine, and that its mortgage was also valid
    under the
Land Titles Act
.

[51]

Relying
    on
Maple Trust
, the trial judge noted that
fraud had been
    alleged against CIC but had not been proved since that issue was not part of
    the hybrid trial. However, CIC was responsible for the defective power of sale
    proceedings. 241 Ontario dealt with CIC and thus 241 Ontario was the
    intermediate owner. Ginkgo was a deferred owner and a
bona fide

encumbrancer for value without notice. Accordingly, Ginkgo
    has a valid first charge against the Property.

[52]

The trial judge went on to find that the extent to which the
    pre-sale mortgagees are affected by Ginkgo having a legal charge, rather than
    only an equitable charge, depends on the amount due and owing under the CIC
    mortgage. That amount was left to be determined in the next stage of the
    proceedings.

[53]

This
    analysis is consistent with
Maple Trust
. However, as there was no
    fraud yet proven in this case,
Maple Trust
,
a fraud case
,
did
    not provide the proper framework. The proper analysis concerned only whether
    Ginkgo had actual notice of a non-fraudulent defect. As noted above, whether
    notice of such a defect creates an exception to the mirror principle is an open
    question that need not be determined on this appeal, as 241 Ontario and
    consequently the other post-sale mortgagees, including Ginkgo, did not have
    actual notice.

[54]

In
    any event, a proper fraud analysis required the trial judge to consider the
    amendments to the
Land Titles Act
enacted after this courts decision
    in
Household Realty
. Those amendments introduced the provisions
    pursuant to which a court is to analyze whether there has been fraud such that
    the mirror principle is defeated. The relevant sections of the Act are as
    follows:

1. In this Act,

fraudulent instrument means an instrument,

(a) under which a
    fraudulent person purports to receive or transfer an estate or interest in
    land,

(b) that is given under
    the purported authority of a power of attorney that is forged,

(c) that is a transfer of
    a charge where the charge is given by a fraudulent person, or

(d) that perpetrates a
    fraud as prescribed with respect to the estate or interest in land affected by
    the instrument; (acte frauduleux)

fraudulent person means a person who executes or
    purports to execute an instrument if,

(a) the person forged the
    instrument,

(b) the person is a
    fictitious person, or

(c) the person holds
    oneself out in the instrument to be, but knows that the person is not, the
    registered owner of the estate or interest in land affected by the instrument;
    (fraudeur)

* * *

78(4) When registered, an instrument shall be deemed
    to be embodied in the register and to be effective according to its nature and
    intent, and to create, transfer, charge or discharge, as the case requires, the
    land or estate or interest therein mentioned in the register.

78(4.1) Subsection (4) does not apply to a fraudulent
    instrument that is registered on or after October 19, 2006.

78(4.2) Nothing in subsection (4.1) invalidates the
    effect of a registered instrument that is not a fraudulent instrument described
    in that subsection, including instruments registered subsequent to such a
    fraudulent instrument.

[55]

Given
    that the trial judge proceeded on the basis that fraud had not been proved, she
    should have restricted her analysis to whether Ginkgo had actual notice of a
    non-fraudulent defect. If this were a case where she was considering a fraud
    argument, a proper analysis had to take into account the post-
Household
    Realty

amendments to the
Land Titles Act

and focus
    on whether the Ginkgo mortgage was a fraudulent instrument that fell within the
    exception found in s. 78(4.1).

[56]

On
    appeal, counsel for the pre-sale mortgagees argues that the Ginkgo mortgage is
    invalid because 241 Ontario is a fraudulent person under subsection (c) of the
    definition of that term. Therefore, he submits that 241 Ontarios purported
    transfer of an interest in the Property was caught by subsection (a) of the
    definition of the term fraudulent instrument. However, counsel concedes that
    his argument can only succeed if 241 Ontario had actual knowledge of the
    defect. I have found that it did not have such knowledge. Accordingly, this
    argument fails against Ginkgo and, to the extent it is made against the
    post-sale subsequent mortgagees, against them as well.

Disposition

[57]

I
    would dispose of the appeals as follows:


(i)

I would allow the appeal of 241 Ontario in appeal C61872 and grant
    judgment that 241 Ontario is
a
bona fide

purchaser for value
    without notice of the defect in the power of sale proceedings and therefore
    holds good title to the Property;


(ii)

I would allow the appeal of the post-sale subsequent mortgagees in
    appeal C61894, and grant judgment that they are

bona fide

mortgagees
    for value without notice of the defect in the power of sale proceedings; and


(iii)

I would dismiss the appeal of the pre-sale mortgagees in appeal C61878.

[58]

The
    parties have agreed on the costs of the appeals and the proceedings below. In
    accordance with their agreement, I would order that Stanbarr Services Limited
    on behalf of the pre-sale mortgagees pay:

(i)

$25,000
    to 241 Ontario in respect of its all-inclusive appeal costs;

(ii)

$7,500
    inclusive to 242 Ontario and Mr. Mohammed in respect of their all-inclusive
    appeal costs;

(iii)

$40,000 inclusive to 241
    Ontario, 242 Ontario, and Mr. Mohammed in respect of their all-inclusive trial
    costs; and

(iv)

$13,500 to Ginkgo inclusive in respect of its all-inclusive responding
    appeal costs.

[59]

In respect of Ginkgo, the trial costs as ordered
    by the trial judge stand.

Released: D.D. March 14, 2018

C.W.
    Hourigan J.A.

I
    agree. Doherty J.A.

I
    agree. S.E. Pepall J.A.





[1]

A thirteenth mortgage (or twelfth subsequent mortgage) was
    held by 2329916 Ontario Ltd. for a period of time, but it did not have a charge
    at the time of the sale and was not a party to the hybrid trial below.



[2]
As no party took the position that 241 was wilfully blind, I do not propose to
    comment on that issue.


