



COURT OF APPEAL FOR BRITISH
COLUMBIA




Citation:



Leatherman v. 0969708 B.C. Ltd.,









2018 BCCA 33




Date: 20180130

Docket: CA44488

Between:

Charles Brooke
Leatherman and Sandra Lea Leatherman

Respondents

(Petitioners)

And

0969708 B.C. Ltd.
and Kootenay Lake Estates Ltd.

Appellants

(Respondents)

And

Oliver Berkeley
and Her Majesty the Queen in Right of Canada

Respondents

(Respondents)




Before:



The Honourable Mr. Justice Lowry

The Honourable Mr. Justice Willcock

The Honourable Mr. Justice Savage




On appeal from:  An
order of the Supreme Court of British Columbia,
dated May 15, 2017 (
Leatherman v. 0969708 BC Ltd.
, 2017 BCSC 793,
Nelson Registry H19731).






Counsel for the Appellants:



T.W. Pearkes







Counsel for the Respondents:



A.A. Edgar







Place and Date of Hearing:



Vancouver, British
  Columbia

January 8, 2018







Place and Date of Judgment:



Vancouver, British
  Columbia

January 30, 2018





Written Reasons by:





The Honourable Mr. Justice Savage





Concurred in by:





The Honourable Mr. Justice Lowry

The Honourable Mr. Justice Willcock













Summary:

Appeal from an order granting
foreclosure to the respondent mortgagees. The appellant mortgagors say the
respondents commenced the underlying action more than two years after they
discovered their right to realize on the mortgage security and therefore, the
proceeding was filed out of time as s. 15, not s. 14, of the
Limitation Act applied. Because of his findings, the judge did not determine
whether the limitation periods had been postponed. Held: Appeal allowed in
part. Under the mortgage the covenant to pay was a demand obligation,
s. 14 applied, and had not tolled. Subject to postponement (1) the
interest payments, due annually, were not demand obligations, and therefore the
mortgagees were barred from suing to recover payments missed more than two
years prior to the commencement of the action, and (2) the ability to
realize on the security was governed by s. 15 of the Act and was time
barred as the mortgagees right to realize on the security arose more than two
years prior to commencement of the action. The matter is remitted to the court
below to determine whether the running of the limitation periods were
postponed.

Reasons for Judgment of the Honourable Mr. Justice Savage:

I.

Introduction

[1]

This appeal arises out a mortgage transaction between former friends.
The central issue in the appeal is whether the debt and the mortgage security
were demand obligations, in which case they would be subject to the limitation period
prescribed by s. 14 of the
Limitation Act
, S.B.C. 2012, c. 13
[
Act
], as found by the judge below.

[2]

The appellant mortgagors say that the obligations were contingent
obligations and s. 15 of the
Act
applies. Since the respondent
mortgagees commenced this proceeding more than two years after they discovered
their right to realize on the mortgage security, the proceeding was filed out
of time. The appellants therefore submit that the appeal must be allowed and
remitted for a trial of the issue that the borrowers acknowledged liability,
and thereby postponed running of the limitation period, a matter not determined
by the chambers judge.

[3]

The respondent mortgagees say that the obligations were demand
obligations. The failure of the mortgagors to comply with their demand for
payment triggered the running of the limitation period pursuant to s. 14
of the
Act
. The decision of the chambers judge should be upheld and the
appeal dismissed. Alternatively, the mortgagees say this Court should find that
the mortgagors confirmed the cause of action within the meaning of s. 24
of the
Act
, thereby postponing the running of the limitation period, and
the appeal should be dismissed.

II.

Background

[4]

On May 28, 2013, Kootenay Lake Estates Ltd. (KLE) granted a
mortgage to Mr. and Ms. Leatherman (collectively, the Leathermans) with
respect to KLEs interest in land, securing a $1,500,000 debt owed by KLE to the
Leathermans (the Mortgage).

[5]

KLE subsequently sold its interest in the land to 0969708 B.C. Ltd.
(708 B.C. Ltd.), which assumed KLEs obligations under the Mortgage on
August 2, 2013. Mr. Oliver Berkeley was the principal and operating
mind of KLE, while his wife, Ms. Siara Berkeley was the authorized
signatory of 708 B.C. Ltd.

[6]

Under the Mortgage, the date of payment is on demand. Until the demand
was made by the mortgagees, the mortgagors were obliged to pay accrued
interest. The Mortgage defined maturity date as the balance due date shown on
the mortgage form, or any earlier date on which the mortgagees could lawfully
require payment of the mortgage money. The Mortgage incorporated the provisions
of
Schedule B  The Prescribed Standard Mortgage Terms
.

[7]

KLE and 708 B.C. Ltd. gave the Leathermans a General Security Agreement
(GSA) over the proceeds of sale of lots that might be subdivided from the
mortgaged land. The GSA provided that if the mortgagors were in breach of the
Mortgage, the mortgagees were free to realize on the GSA.

[8]

708 B.C. Ltd. first failed to make a required interest payment on
October 31, 2013. No action was taken by the Leathermans in response to
this failure. 708 B.C. Ltd. continued to fail to make the required interest
payments in the subsequent years. Correspondence was exchanged in relation to
the debt and its repayment between the mortgagees and the mortgagors in
November 2015.

[9]

The Leathermans issued a demand for payment of the whole amount of the
principal and interest due on the debt (and are now seeking only 6% annual
interest, the lowest amount of interest contemplated by the Mortgage) after 708
B.C. Ltd. again failed to make an interest payment on October 31, 2016.
This demand was made on November 9, 2016. The Leathermans filed a petition
seeking repayment and foreclosure in December 2016.

[10]

The mortgagors responded to the petition by arguing it was statute
barred because the two‑year limitation period commenced on November 1,
2013 when the mortgagors first failed to make a required payment. According to
the mortgagors, their failure to make payment on October 31, 2013 was a
breach of the promise contained in the agreement, and an act of default
pursuant to Clause 7, which triggered the right of the mortgagees to
accelerate payment pursuant to Clause 8
Schedule B  The
Prescribed Standard Mortgage Terms
(Clause 8 of the Prescribed
Terms). In support of this argument, the mortgagors relied on ss. 6(1)
and 15 of the
Limitation Act
.

[11]

Conversely, the Leathermans submitted the failure of the mortgagors to
comply with their demand for payment, made November 9, 2016, was the
triggering event for the purposes of the
Limitation Act
. They referred
to s. 14 of the
Limitation Act
, which provides that a claim for a
demand obligation is discovered on the first day that there is a failure to
perform the obligation after a demand for the performance has been made. Thus,
the mortgagees submit, there is no merit to the limitation period response made
by the mortgagors. Alternatively, they say that the limitation period was
postponed.

Decision of the Chambers Judge

[12]

In reasons indexed as
Leatherman v. 0969708 BC Ltd.
, 2017 BCSC
793, Mr. Justice Rogers found that the Mortgage and assumption agreement
are governed by the provisions of the 2013 iteration of the
Limitation Act
.
The earlier iteration of the
Limitation Act
[
R.S.B.C. 1996, c. 266
]
did not apply. The judge considered the
authorities submitted by the mortgagors, namely
492621 B.C. Ltd. v. Bustin
Farms Ltd.
, 2009 BCSC 1464, and
Kong v. Saunders
, 2014 BCCA 508. The
judge concluded that the case at bar was distinguishable from both those cases.

[13]

Bustin Farms
was not instructive because the mortgage at issue
stipulated a maturity date, unlike the Mortgage at issue, which indicated the
mortgagee could demand payment at any time. While Clause 8 of the
Prescribed Terms was incorporated into the Mortgage, the judge held that its
inclusion was superfluous as the mortgagees could in fact realize on the Mortgage
at any time.

[14]

Likewise,
Kong
did not help the mortgagors.
Kong
noted
that the ability of a lender to realize on a demand loan arises from the moment
the agreement is reached. However, the judge noted the 2013 amendments to the
Limitation
Act
modified the law.

[15]

Section 14 of the
Limitation Act
provides that a pure demand
loan will be treated like a delayed-demand loan in which the lender may demand
payment at any time but stipulates that payment occur upon some future event.
The effect of s. 14 is that the limitation period for pure demand loans
commences not upon the making of the loan but rather
when a demand is made
and the borrower fails to comply.

[16]

The judge said the mortgagors argument confused the legal right to sue
with the start of a limitation period. Section 14 does not modify when the
lender may make a demand for payment on a demand loan. It simply modifies when
the limitation period commences once the lender has issued such a demand. The judge
was unpersuaded by the further submission that the existence of the GSA
indicated the parties did not intend to create a simple demand loan.

[17]

Accordingly, the Leathermans had the right to demand repayment of the
loan at any time once the agreement was made, and the limitation period to seek
foreclosure was triggered by their request for repayment in November 2016. An
order
nisi
was therefore entered, pursuant to the terms requested by the
mortgagees, granting a six‑month redemption period and $1,934,827.65 due
with 6% interest accruing per annum.

III.

Legislation

[18]

British Columbias new
Limitation Act
came into force on June 1,
2013. Unlike the former act, the new
Act
sets out the governing
limitation period unless modified by another law.

[19]

The new
Act
created a single two‑year basic limitation
period for most civil claims (s. 6), modifying the limitation periods
found in the prior
Act
which varied between two, six, and ten years
depending on the cause of action: see Graeme Mew, Debra Rolph & Daniel
Zacks,
The Law of Limitations
, 3d ed. (Markham, Ont.: LexisNexis,
2016) at 11. The two‑year basic limitation period commences once the
claim has been discovered (s. 6(1)).

[20]

Significantly, for the matter at bar, the new
Act
introduced discovery rules for certain types of claims, including the
enforcement of demand obligations and realizing or redeeming securities in the
secured transactions context.

[21]

Prior to the enactment of the amended
Act
, there was no special
rule in place for demand obligations, which are financial arrangements with no
fixed conditions for repayment and are payable on the demand of the lender.

[22]

Absent specific statutory provisions, the common law interpretation was
that the limitation period for demand loans commenced the day at which the
parties entered into the demand loan. In
Berry v. Page
(1989), 38
B.C.L.R. (2d) at 247 (C.A.), the Court said:

The characterization of the
loan as either a contingent loan or a demand loan determines whether or not the
action is statute barred under the Limitation Act. It is well established that
the cause of action accrues, and the statute of limitation runs, from the
earliest time at which repayment can be required (Chitty on Contracts, 25th ed.
(1983), vol. I, para. 1843, p. 1024).
For a demand loan, the
statute of limitations runs as of the date of the advancement of the funds, and
not from the date of the demand. No demand is necessary in order for the cause
of action to arise
:
Barclay Const. Corp. v. Bank of Montreal
(1988),
28 B.C.L.R. (2d) 376 at 381 (S.C.);
Henback v. Sprague
,
[1933] 3 D.L.R. 647 (Man. C.A.).


[Emphasis added.]

[23]

On the other hand, in the context of delayed-demand or contingent loans,
the cause of action and thus, the limitation period, would commence on the
repayment date or upon the happening of the contingency: see
Ewachniuk
Estate v. Ewachniuk
, 2011 BCCA 510;
Kong v. Saunders
, 2014 BCCA 508.
In
Berry v. Page
, at 247, the Court said this:

Case law supports the proposition
that if money is lent to be repaid at a particular time in the future, or upon
the happening of a specified contingency, then the cause of action arises at
the time specified or upon the happening of the contingency:
Ingrebretsen v.
Christensen
, 37 Man. R. 93, [1927] 3 W.W.R. 135 (C.A.);
Re Gould;
Ex parte Garvey
, [1940] O.R. 250, [1940] 3 D.L.R. 12 (C.A.). In these
circumstances, the cause of action does not arise, and the statute of
limitations does not run until the contingency is satisfied.

[24]

The relevant sections of the new
Act
are as follows:

Discovery
rule for claims for demand obligations

14
A
claim for a demand obligation is discovered on the first day that there is a
failure to perform the obligation after a demand for the performance has been
made.

Discovery
rule for claims to realize or redeem security

15
A claim to realize or redeem
security is discovered on the first day that the right to enforce the security
arises.

[25]

It is the impact of these provisions that is in issue in this appeal.

IV.

Standard of Review

[26]

The issue on appeal concerns both the interpretation of the
Limitation
Act
and the interpretation of the Mortgage. The judges interpretation of
the
Limitation Act
is reviewable on the standard of correctness. The
interpretation of the Mortgage is a question of mixed fact and law, and
reviewable on the more deferential palpable and overriding error standard,
unless there is an extricable question of law.

V.

Discussion and Analysis

(i) The New
Act

[27]

The inclusion of s. 14 in the amended
Act
was designed to
address the difficulties arising from the application of the limitation period
to pure demand obligations. Lenders who enter into such obligations range from
unsophisticated parties lending to friends, to institutions such as banks and
credit unions lending in a commercial context.

[28]

Under the former
Act
, the limited timeframe in which a lender
could seek recourse to enforce repayment could be problematic as persons who
entered into demand loans included unsophisticated parties, or family members,
whose agreements were often informal. Unfairness could also occur where a
lender died before recovering payment and the lenders beneficiaries, for
example, did not know of the informal arrangement: see Civil Policy and
Legislation Office, British Columbia Ministry of Justice, White Paper on
Limitation Act Reform: Finding the Balance (Victoria: Ministry of Attorney
General, September 2010), at 75; John D. Morrison & Navnit Duhra,
New B.C.
Limitation Act
More Favourable to Lenders Holding Demand
Obligations, (2014) 31:1 Natl Insolv Rev 4 at 4; Katherine A.
Reilly & Jamieson D. Virgin, The Discovery of Demand Obligations
under B.C.s
Limitation Act
 (2014)
34 Est. Tr. & Pensions J. 288 at 293
.

[29]

The effect of s. 14 in the new
Act
brings the limitation
period for demand obligations in line with delayed-demand obligations. Pursuant
to s. 14, a claim for repayment of a demand obligation is discovered on
the first day there is a failure to make repayment
once a demand has been
made
. The two‑year limitation period thus commences once there is a
default after a demand for repayment is made.

[30]

While deciding an appeal in the context of the prior
Act
, Mr. Justice
Tysoe of this Court noted that with the passage of s. 14 of the new
Act
addressing the limitation period for demand obligations the limitation period
does not begin running until demand is made:
Kong
at para. 23.
While
obiter dicta
, this interpretation is consistent with legislative
intent given the harms the amended legislation sought to address.

[31]

In the secured transactions context, s. 15 of the new
Act
modified the limitation period for secured parties seeking to bring a claim to
realize or redeem their security. Under s. 3(4) of the prior
Act
,
there was no limitation on the period in which a secured party could bring an
action to realize on collateral that they already possessed. If the collateral
was not in the possession of the secured party, then the six‑year
limitation period applied (s. 3(6)(a)). This provision was often cited in
mortgage foreclosure proceedings: see e.g.,
Taylor Ventures Ltd. (A Bankrupt)
v. High Meadow Holdings Ltd.
, 2006 BCSC 1095 at para. 23, affd 2008
BCCA 80 at para. 13.

[32]

The effect of s. 15 of the new
Act
is that the general two‑year
limitation period applies to actions seeking to realize or redeem a security,
but the time starts running from the first day
the right to enforce the
security arises
. This change would not have an adverse effect on secured
parties holding demand obligations, for which the limitation period will only
commence once a demand has been made: see Morrison & Duhra at 4‑5.

[33]

If a security is realizable or redeemable upon default, then the
limitation period commences when the default  or right to enforce the security
 occurs. If the security is enforceable on demand, then logically the
limitation period will commence once the demand has been made, and there has
been a default.

[34]

Sections 14 and 15 of the new
Act
have yet to receive
judicial consideration, apart from the present proceedings. On its face,
s. 14 modifies the commencement date for the limitation period for demand
obligations to the date of demand. On its face, s. 15 did not modify the law
regarding the commencement date for tolling the limitation period for a claim
to realize or redeem security.

(ii) The Mortgage

[35]

The Mortgage in this case was for the principal amount of $1,500,000.
The first payment of interest was October 31, 2013. The last payment day
is specified as On Demand and the balance due date is On Demand. The
Prescribed Standard Mortgage Terms are checked off as applying.

[36]

Under Payment Dates the following provision occurs:

This Mortgage is due On Demand. Until
Demand is made, the Borrower must make minimum payments of interest only, such
payments of interest to be paid on the earlier of (a) any sale of any lot
subdivided from the Mortgaged Lands, and (b) on October 31st of each
and every year commencing October 31, 2013.

[37]

Clause 8 of the Prescribed Terms provides:

8(1) If a default occurs, all the mortgage money then owing
to the lender will, if the lender chooses, at once become due and payable,

(2) if a default occurs the lender may, in any order that the
lender chooses, do any one or more of the following:

(a) demand payment of all the
mortgage money;

(b) sue the borrower for the amount
of money due



(f) apply to the court for an order
that the land be sold on terms approved by the court;

(g) apply to
the court to foreclose the borrowers interest in the land so that when the
court makes its final order of foreclosure the borrowers interest in the land
will be absolutely vested in and belong to the lender;



[38]

The term mortgage money is defined to mean:

the principal amount, interest
and any other money owed by the borrower under this mortgage, the payment of
which is secured by this mortgage.

[39]

The judge interpreted Clause 8 of the Prescribed Terms to be
superfluous. This was because the Mortgage did not have a maturity date and
the right to demand payment was not contingent on some act of default by the
mortgagor.

(iii) Application

[40]

The appellants argue that the Mortgage is not a pure demand
obligation, relying on
Bustin Farms
and the authorities cited therein,
to claim that the running of the limitation period begins immediately upon
default by the borrower. In
Bustin Farms
,

the mortgage in
question was not a demand mortgage, it provided for monthly payments, had a
last payment date and balance due date. Upon the first incident of default the
lender had the option to accelerate the debt. The cases relied on in
Bustin
Farms
did not concern demand obligations: each had an explicit payment due
date and required an acceleration provision to seek payment in full after
default.

[41]

The situation in
Kong
is an example of a demand obligation under
the old
Limitation Act
. The Court found that the limitation period began
to run on the date the loan was made, and expired six years later. The Court
noted that s. 14 of the new
Limitation Act
would have treated the
case differently, as the limitation period would not have commenced to run
until demand was made.

[42]

The appellants submit that the Mortgage here is a contingent loan with
a demand element and the use of the term payable on demand does not make the
Mortgage a demand obligation. The appellants rely on Ontario authorities
saying that loans that have demand elements may not be considered demand
obligations for the purposes of parallel provisions under the Ontario
legislation.

[43]

In my view, the Ontario authorities are not particularly helpful. In
Berry
v. IPC Securities Corp.
, [2009] O.J. No. 1598, the loan called for
monthly interest payments and had an explicit due date for the principal sum (para. 17).
In
Urbas Estate v. Home Savings and Loan Corp.
, 2015 ONSC 6399, the
demand component was inherent in the loan, which was found to be a demand
obligation in circumstances where the demand date was uncertain (paras. 47‑56).
A debt obligation that does not specify a date for repayment is a demand
obligation. Where a debt obligation was payable on a specified date, it was
found not to be a demand obligation:
Skuy v. Greennough Harbour Corporation
,
2012 ONSC 6998 (paras. 50‑51).

[44]

I agree that the mere insertion of the term payable on demand does not
render a mortgage a demand obligation. In my view, the agreement here
reflects a reasonable arrangement in a high-risk lending environment where
there was little prospect for repayment on strict terms or on a specified due
date. As such, it included
both
a demand obligation and a contingent
obligation.

[45]

This Mortgage, like most mortgages, includes both a covenant to pay and
security for the debt. The covenant to pay the principal, considered on its
face, and alone, is a demand obligation. With respect to it, s. 14
applies; that is, it is not payable until demand. The obligation to pay
interest, however, is not a demand obligation because it was payable without
demand on October 31 of each year. The Mortgage also provides that the
property mortgaged is security for the debt. With respect to security for the
debt, s. 15 of the
Act
applies. The right to realize on the
security arises upon discovery of that right.

[46]

Discovery of the right, by s. 15, arises upon default. The default
occurred when an interest payment was not made under the Mortgage, and thus the
right to realize on the security arose on such default, and the two‑year
limitation period would apply from default, unless postponed.

[47]

With respect to the demand obligation, s. 14 applied. Thus, the
limitation period with respect to the ability to seek judgment enforcing the
covenant to pay ran from November 9, 2016, the first day of a failure to
pay after demand. With respect to the right to realize on the security, the
limitation period ran from the first day that the right to enforce the security
arose, namely, the date of default, October 31, 2013, by virtue of
s. 15.

[48]

Accordingly,
absent postponement
, the limitation period has
expired with respect to the Leathermans ability to realize on the security and
some of the interest. However, the limitation period had not tolled with
respect to their ability to seek judgment on the covenant to pay, except to the
extent of the interest payable more than two years prior to the commencement of
the foreclosure action.

[49]

The appellants submit that the incorporation of the Clause 8 of the
Prescribed Terms accelerates the due date of the Mortgage to the first instance
of default: when the first payment of interest was due and not paid. The
appellants submit that, as in
Bustin Farms,
the first missed interest
payment commenced the limitation period for the entirety of the Mortgage, that
is, for actions on the covenant as well as enforcement of the security.

[50]

The judge found that the inclusion of Clause 8 of the Prescribed
Terms into the Mortgage was superfluous, but I do not see how that can be so.
Rather, the Prescribed Terms must be read alongside the stipulated terms of the
Mortgage.

[51]

Clause 8 of the Prescribed Terms provides that if a default
occurs, all the mortgage money then owing to the lender will, if the lender
chooses, at once become due and payable. As noted above, mortgage money is
defined to include the principal amount, interest and any other money owed by
the borrower under this mortgage, the payment of which is secured by this
mortgage.

[52]

In the context of this particular Mortgage, the parties stipulated that
the principal was payable on demand. Therefore, consistent with the language of
the Prescribed Terms, the repayment of the principal remains a demand
obligation. Pursuant to s. 14 of the new
Act
, the limitation period
for this demand component will only commence once demand is made. In my view,
the Prescribed Terms cannot render inapplicable the changes to the
Limitation
Act
concerning demand obligations.

[53]

This does not render the Prescribed Terms superfluous. Certain other
obligations stipulated by the Mortgage that are not demand obligations may be
impacted by the Prescribed Terms. For example, while the parties did not make
submissions to the effect that the interest and principal owing should be
treated differently with respect to limitation periods, the Prescribed Terms
effect is to treat these moneys differently.

[54]

The judge found it unnecessary to deal with the postponement issue.
However, as I have concluded the limitation period has tolled with respect to
the respondents ability to realize on the security, and to sue for some of the
interest, it is necessary to consider whether postponement actually occurred in
this case.

[55]

In general, it is inappropriate for this Court to determine factual
issues at first instance. To do so would require appellate fact-finding,
something, ordinarily, this Court will not do:
Swiss Reinsurance Company v.
Camarin Limited,
2015 BCCA 466 at para. 65;
Winstanley v.
Winstanley
, 2017 BCCA 265 at para. 64. I see no reason to depart from
that principle here.

VI.

Conclusion

[56]

In the result, I would dismiss the appeal from the order granting
judgment on the covenant. I would allow the appeal as it pertains to the
ability to realize on the security, and the obligation to pay some of the interest,
set aside the order
nisi
, and remit the matter to the court below to
deal with the postponement issue and any residual issues.

The
Honourable Mr. Justice Savage

I agree:

The Honourable Mr. Justice
Lowry

I agree:

The Honourable Mr. Justice
Willcock


