Heritage Capital Corp. v. Equitable Trust Co. et al., (2016) 482 N.R. 361 (SCC)

• Judge: McLachlin, C.J.C., and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown, JJ.
• Court: Supreme Court (Canada)
• Case Date: January 22, 2016
• Jurisdiction: Canada (Federal)
• Citations: (2016), 482 N.R. 361 (SCC);2016 SCC 19

Heritage Capital Corp. v. Equitable Trust (2016), 482 N.R. 361 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2016] N.R. TBEd. MY.010

Heritage Capital Corporation (appellant) v. The Equitable Trust Company (now continued as Equitable Bank), Lougheed Block Inc., Neil John Richardson, Hugh Daryl Richardson, Heritage Property Corporation, 604 1st Street S.W. Inc. and Krayzel Corp. (respondents)

(36301; 2016 SCC 19; 2016 CSC 19)

Indexed As: Heritage Capital Corp. v. Equitable Trust Co. et al.

Supreme Court of Canada

McLachlin, C.J.C., and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown, JJ.

May 6, 2016.

Summary:

The Lougheed Building in Calgary was designated a "Municipal Historic Resource" under Alberta's Historical Resources Act (HRA). The owner ("LBI") agreed to rehabilitate the building and adhere to restrictions on its use in exchange for 15 yearly "incentive payments" from the City. The agreement was registered by caveat on title to the land pursuant to the HRA. LBI assigned the right to the incentive payments to two successive lenders ("Equitable" and "Heritage") as security for loans. LBI defaulted on the Equitable loan. The building was sold to "604" in judicial sale. After the closing, Equitable assigned its interest in the incentive payments to 604. That assignment was registered at the personal property registry, after the Heritage assignment was registered. Heritage and 604 each claimed a right to the incentive payments. At issue was whether the incentive payments constituted a positive covenant running with the land by virtue of the HRA, whether they had been sold to 604 in the judicial sale of the building, and the effect of the assignments.

A Master of the Alberta Court of Queen's Bench, in a decision reported at (2011), 512 A.R. 200, found that the incentive payments did not run with the land by operation of the HRA, and that they had not been sold to 604 in the judicial sale. 604 appealed.

The Alberta Court of Queen's Bench, in a decision reported at (2013) 550 A.R. 337, dismissed the appeal. 604 appealed.

The Alberta Court of Appeal, in a decision reported at (2014), 588 A.R. 258; 626 W.A.C. 258, allowed the appeal, finding that the HRA created sui generis covenants that displaced the common law rule that positive covenants did not run with the land. Heritage appealed.

The Supreme Court of Canada allowed the appeal. The incentive payments: (a) did not run with the land under the HRA; (b) were not sold in the judicial sale; and (c) were assigned as security and the order of priorities was therefore governed by Alberta's Personal Property Security Act.

Mortgages - Topic 5664

Mortgage actions - Sale - Interest conveyed - The Lougheed Building in Calgary was designated a "Municipal Historic Resource" under Alberta's Historical Resources Act (HRA) - The owner ("LBI") agreed to rehabilitate the building and adhere to restrictions on its use in exchange for 15 yearly "Incentive Payments" from the City - The building was sold to "604" in judicial sale - One of LBI's creditors ("Heritage") and 604 each claimed a right to the Incentive Payments - The Supreme Court of Canada held that the Incentive Payments were not sold in the judicial sale of the building - "There was no indication, express or otherwise, in any of the documents related to the sale that the court intended to sell, or 604 intended to buy, the Incentive Payments. Granting the payments to 604 as the current owner would create an undeserved windfall and would have no commercial rationale." - See paragraphs 5, 51 to 56.

Personal Property - Topic 6002

Security interests - General - Application of legislation - [See Personal Property - Topic 6201 ].

Personal Property - Topic 6201

Security interests - Priorities - General - The Lougheed Building in Calgary was designated a "Municipal Historic Resource" under Alberta's Historical Resources Act - The owner ("LBI") agreed to rehabilitate the building and adhere to restrictions on its use in exchange for 15 yearly "Incentive Payments" - LBI assigned the right to the Incentive Payments to two successive lenders ("Equitable" and "Heritage") as security for loans - LBI defaulted on the Equitable loan - The building was sold to "604" in judicial sale - After the closing, Equitable assigned its interest in the Incentive Payments to 604 - That assignment was registered at the personal property registry, after the Heritage assignment was registered - Heritage and 604 each claimed a right to the Incentive Payments - The Supreme Court of Canada found that the Incentive Payments were assigned as security and that the order of priorities was therefore governed by Alberta's Personal Property Security Act (PPSA) - "The PPSA applies to 'every transaction that in substance creates a security interest, without regard to its form and without regard to the person who has title to the collateral' (s. 3(1)(a)). We conclude that the Incentive Payments are a chose in action. The right to the Incentive Payments is merely contractual and is not an interest that runs with the land or that is ancillary to the real property. Therefore, it follows that, contrary to 604's suggestion, any interests in the payments are not exempt from the PPSA pursuant to s. 4(f) or (g) thereof. The PPSA governs the priority of interests in the Incentive Payments." - See paragraphs 57 to 63.

Real Property - Topic 131

General principles - Covenants that run with land - General (incl. interpretation) - The Supreme Court of Canada considered the issue of whether and to what extent s. 29 of Alberta's Historical Resources Act (HRA) displaced the common law rule by permitting positive covenants to run with the land - "Applying the widely accepted modern approach to statutory interpretation", the Court concluded that "only covenants in favour of a 'person or organization' listed in s. 29(1), whether negative or positive, will run with the land ... . There is a presumption of statutory interpretation that the provisions of a statute are meant to work together 'as parts of a functioning whole' ... and form an internally consistent framework. ... In addition, where the legislature expressly creates a statutory exception to a common law principle, that exception should be narrowly construed, as the legislature is assumed not to have intended to change the common law unless it has done so clearly and unambiguously. ... Applying these principles of statutory interpretation, we conclude that the exception to the common law rule provided for in s. 29 of the HRA should be limited by the precise language of the provision and the underlying purpose of the HRA. Section 29 should not be interpreted more broadly than necessary." - See paragraphs 27 to 31.

Real Property - Topic 131

General principles - Covenants that run with land - General (incl. interpretation) - At issue was whether 15 yearly "Incentive Payments" from the City of Calgary constituted a positive covenant running with the land by virtue of Alberta's Historical Resources Act (HRA) - The purpose of the Incentive Payments was to compensate the owner ("LBI") for the restoration and for any decrease in economic value due to the building's historic resource designation - The incentive agreement was registered by caveat on title to the land pursuant to the HRA - The building was sold in judicial sale - The Supreme Court of Canada, applying a purposive and contextual analysis of the HRA, and particularly of s. 29, held that the Incentive Payments did not run with the land under the HRA - "Even though, at s. 29(3), the HRA provides that a condition or covenant relating to the preservation or restoration of any land or building that is registered on title under s. 29(2) runs with the land and can be enforced whether it is positive or negative, we conclude that the only covenants that run with the land under the HRA are those that are in favour of the person or organizations listed in s. 29(1). In the instant case, although the City falls under the listed organizations, the covenant to pay the Incentive Payments is not in its favour." - See paragraphs 4, 31 to 42.

Sale of Land - Topic 4504

Restrictive or positive covenants - General principles - Covenant which binds or runs with the land - What constitutes - [See second Real Property - Topic 131 ].

Sale of Land - Topic 4512

Restrictive or positive covenants - General principles - Interpretation - [See first Real Property - Topic 131 ].

Sale of Land - Topic 4688

Restrictive or positive covenants - Positive covenants - Effect on subsequent purchasers - [See second Real Property - Topic 131 ].

Statutes - Topic 2601

Interpretation - Interpretation of words and phrases - Modern rule (incl. interpretation by context) - General principles - [See first Real Property - Topic 131 ].

Statutes - Topic 2603

Interpretation of words and phrases - Modern rule (incl. interpretation by context) - Intention from whole of section or statute - [See first Real Property - Topic 131 ].

Statutes - Topic 2614

Interpretation - Interpretation of words and phrases - Modern rule (incl. interpretation by context) - Legislative or statutory context - [See first Real Property - Topic 131 ].

Statutes - Topic 5941

Operation and effect - Effect on common law - General - [See first Real Property - Topic 131 ].

Counsel:

Jeffrey E. Sharpe and Paul G. Chiswell, for the appellant;

No one appeared for the respondent, The Equitable Trust Company;

Toby D. Schultz, for the respondents, The Lougheed Block Inc., Neil John Richardson, Hugh Daryl Richardson and the Heritage Property Corporation;

Derrick S. Pagenkopf and Peter Morrison, for the respondent, 604 1st Street S.W. Inc.;

No one appeared for the respondent, Krayzel Corp.

Solicitors of Record:

Burnet, Duckworth & Palmer, Calgary, Alberta, for the appellant;

Willow Park Law Office, Calgary, Alberta, for the respondents, The Lougheed Block Inc., Neil John Richardson, Hugh Daryl Richardson and the Heritage Property Corporation;

Gowling WLG (Canada) Inc., Calgary, Alberta, for the respondent, 604 1st Street S.W. Inc.

This appeal was heard on January 22, 2016, before McLachlin, C.J.C., and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown, JJ., of the Supreme Court of Canada. In reasons written jointly by Gascon and Côté, JJ., the Court delivered the following judgment on May 6, 2016, in both official languages.