Hongkong Bank of Canada v. Wheeler Holdings Ltd., (1993) 148 N.R. 1 (SCC)

• Judge: La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, Stevenson and Iacobucci, JJ.
• Court: Supreme Court (Canada)
• Case Date: January 21, 1993
• Jurisdiction: Canada (Federal)
• Citations: (1993), 148 N.R. 1 (SCC);135 AR 83;6 Alta LR (3d) 337;1993 CanLII 148 (SCC);148 NR 1;37 ACWS (3d) 1201;33 WAC 83;[1993] 1 SCR 167;100 DLR (4th) 40;29 RPR (2d) 1

Hongkong Bk. v. Wheeler Holdings Ltd. (1993), 148 N.R. 1 (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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Canada Mortgage and Housing Corporation (appellant) v. Hongkong Bank of Canada (respondent) and Wheeler Holdings Ltd., Town House Development Ltd., Wellington Housing Developments Ltd., Kate Wheeler, Pamela K. Wheeler, George L. Wheeler, Lois Anderson, Patricia May Kirk, 375069 Alberta Ltd., 386360 Alberta Ltd. and 376491 Alberta Ltd. (respondents)

Canada Mortgage and Housing Corporation (appellants) v. 375069 Alberta Ltd. and Town House Development Ltd. (respondents)

Canada Mortgage and Housing Corporation (appellant) v. 386360 Alberta Ltd. and Wellington Housing Developments Ltd. (respondents) and Attorney General of Quebec (intervenor)

(22268)

Indexed As: Hongkong Bank of Canada v. Wheeler Holdings Ltd.

Supreme Court of Canada

La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, Stevenson and Iacobucci, JJ.

January 21, 1993.

Summary:

Two corporate developers obtained CMHC mortgages to fund two low-rental housing projects. Operating agreements between CMHC and the developers incorporated s. 16(4)(g) of the 1954 National Housing Act, which required a contract provision that there be no sale or disposition of the mortgaged properties without CMHC approval. The developers granted a second mortgage and twice entered agreements to sell the projects, without CMHC approval. The first sale agreement (1988) provided for title free and clear of all obligations under the CMHC mortgages and agreements. In 1989, the second mortgagee brought foreclosure actions and proposed a judicial sale to another purchaser, free and clear of obligations under the agreements, but subject to the CMHC mortgages. The second mortgagee applied for judicial approval of the proposed sale.

A Master of the Alberta Court of Queen's Bench, in a judgment reported 99 A.R. 94, dismissed the application. The second mortgagee appealed. The 1988 purchasers applied for a declaration that they owned the properties and were not bound by the operating agreements. The appeal and action were heard together.

The Alberta Court of Queen's Bench allowed the appeal and granted the declaration sought. CMHC appealed.

The Alberta Court of Appeal, in a judgment reported 111 A.R. 42, dismissed the appeal and subsequently (112 A.R. 85) awarded solicitor and client costs to CMHC and the second mortgagee. CMHC appealed. The respondents sought to vary the costs award.

The Supreme Court of Canada allowed the appeal, but only to the extent of deleting that provision of the Queen's Bench order that permitted the 1988 purchasers to pay off the first mortgages and redeem. The court refused to interfere with the costs award and otherwise confirmed the decision of the Court of Appeal.

Company Law - Topic 688

Powers - Doctrine of ultra vires - Acts contrary to statute - CMHC (first mortgagee) claimed that second mortgages by the corporate mortgagors were ultra vires their corporate powers - The Supreme Court of Canada stated that although the objects of incorporation did not expressly authorize borrowing by second mortgage, such power was included in s. 20(1)(h) of the Companies Act, R.S.A. 1980, c. C-20 - The ultra vires doctrine, which was abolished in most jurisdictions, should not be applied restrictively - It was generally recognized that corporations required the ability to mortgage their property to undertake normal business operations - The power to raise funds by second mortgage was incidental to the corporations' stated objects - See paragraphs 59 to 72.

Equity - Topic 1482

Equitable principles respecting relief - Clean hands doctrine - Application of - [See Practice - Topic 5650 ].

Equity - Topic 1482

Equitable principles respecting relief - Clean hands doctrine - Application of - Mortgagors flagrantly breached mortgages and operating agreements with CMHC by granting second mortgages and disposing of the properties without consent - The assignee of the second mortgagee, who had no knowledge of the breaches, and the purchasers sought declaratory relief respecting the transactions - CMHC claimed the clean hands doctrine barred relief - The Supreme Court of Canada stated that the second mortgagee and purchasers committed no wrong disentitling them to equitable relief - An entire transaction is not tainted by the unclean hands of certain parties to it (i.e., mortgagors) - The court stated that absent collusion, the purchasers' knowledge of the mortgagors' breach of the mortgages and agreements was insufficient to preclude equitable relief - See paragraphs 32 to 47.

Mortgages - Topic 1441

The mortgage - Validity of - General - Section 16(4)(g) of the National Housing Act provided that a CMHC mortgage under the Act was to provide that a mortgagor was not to sell or dispose of the mortgaged property without CMHC's approval - Mortgagors granted a second mortgage and entered into agreements for sale without CMHC approval - CMHC claimed the transactions were illegal - The Supreme Court of Canada held that s. 16(4)(g) neither expressly nor impliedly prohibited the transactions - Section 16 did not create a statutory restraint on alienation - See paragraphs 48 to 57.

Practice - Topic 5650

Judgments and orders - Declaratory judgments - Nature of - The Supreme Court of Canada stated that whether declaratory relief was equitable in nature or not, equitable principles such as the clean hands doctrine played a role in the exercise of the court's discretion whether or not to grant a remedy - See paragraphs 32 to 47.

Practice - Topic 7470.1

Costs - Solicitor and client costs - Entitlement to - Deliberate breach of agreement - Mortgagors deliberately breached agreements not to sell mortgaged lands during the 40 year term of the mortgage - The Alberta Court of Appeal awarded solicitor and client costs against the mortgagors notwithstanding they were successful in being legally entitled to sell the lands free from the prohibition - The Supreme Court of Canada affirmed the costs award - See paragraphs 73 to 82.

Real Property - Topic 243

Restrictions on alienation - What constitutes a statutory restriction - Section 16 of the National Housing Act required CMHC to include a provision requiring all mortgagors not to sell or dispose of the mortgaged property during the term of the mortgage, unless CMHC approved - The Supreme Court of Canada affirmed that s. 16 did not create a statutory restraint on alienation respecting the mortgaged lands.

Cases Noticed:

Canada Permanent Trust Co. v. King's Bridge Apartments Ltd. et al. (1982), 41 Nfld. & P.E.I.R. 265; 119 A.P.R. 265; 24 R.P.R. 32 (Nfld. T.D.), refd to. [para. 13].

Moody v. Cox, [1917] 2 Ch. 71 (C.A.), refd to. [para. 33].

Chapman v. Michaelson, [1909] 1 Ch. 238 (C.A.), refd to. [para. 35].

Tito v. Waddell (No. 2), [1977] Ch. 106, refd to. [para. 35].

Sara v. Sara (1962), 36 D.L.R.(2d) 499 (B.C.C.A.), refd to. [para. 37].

Morris and Morris, Re (1973), 42 D.L.R.(3d) 550 (Man. C.A.), refd to. [para. 37].

MacDonald and Law Society of Manitoba, Re (1975), 54 D.L.R.(3d) 372 (Man. Q.B.), refd to. [para. 37].

Campbell v. Campbell (1937), 300 N.Y.S. 760 (Sup. Ct.), refd to. [para. 37].

Mills v. Mills (1935), 179 A. 5 (Conn.), refd to. [para. 37].

Valley Vu Realty (Ottawa) Ltd. and Victoria & Grey Trust Co., Re (1984), 44 O.R.(2d) 526 (H.C.), affd. 47 O.R.(2d) 544n (C.A.), dist. [para. 44].

Colonial & Home Fuel Distributors Ltd. v. Skinners' Ltd. (1963), 39 D.L.R.(2d) 579 (Man. Q.B.), affd. 46 D.L.R.(2d) 695 (C.A.), affd. [1964] S.C.R. v, dist. [para. 44].

Communities Economic Development Fund v. Canadian Pickles Corp. et al., [1991] 3 S.C.R. 388; 131 N.R. 81; 76 Man.R.(2d) 1; 10 W.A.C. 1, refd to. [para. 60].

Introductions Ltd., In Re, [1970] Ch. 199 (C.A.), dist. [para. 64].

Attorney General v. Great Eastern Railway Co. (1880), 5 App. Cas. 473 (H.L.), refd to. [para. 65].

Bell Houses Ltd. v. City Wall Properties Ltd., [1966] 2 Q.B. 656 (C.A.), refd to. [para. 65].

New Finance and Mortgage Co., In Re, [1975] Ch. 420, refd to. [para. 65].

Patent File Co., In Re (1870), L.R. 6 Ch. 83, refd to. [para. 67].

General Auction Estate and Monetary Co. v. Smith, [1891] 3 Ch. 432, refd to. [para. 67].

Canada Permanent Trust Co. v. King's Bridge Apartments Ltd. et al. (1984), 48 Nfld. & P.E.I.R. 345; 142 A.P.R. 345; 8 D.L.R.(4th) 152 (Nfld. C.A.), refd to. [para. 75].

Paul v. Paul (1921), 50 O.L.R. 211 (C.A.), refd to. [para. 75].

Bahnsen and Hazelwood, Re (1960), 23 D.L.R.(2d) 76 (Ont. C.A.), refd to. [para. 75].

Garnet Lane Developments Ltd. v. Webster (1986), 20 O.A.C. 291; 43 R.P.R. 138 (Div. Ct.), refd to. [para. 76].

Knightsbridge Estates Trust Ltd. v. Byrne, [1938] 4 All E.R. 618 (C.A.), refd to. [para. 78].

Statutes Noticed:

Business Corporations Act, S.A. 1981, c. B-15, sect. 15(1), sect. 18, sect. 117(2) [para. 60].

Companies Act, R.S.A. 1955, c. 53, sect. 19(h) [para. 24].

Companies Act, R.S.A. 1980, c. C-20, sect. 20(1)(h) [para. 62].

Constitution Act, 1867, sect. 92 [para. 56].

Land Titles Act, R.S.A. 1980, c. L-5, sect. 62(1) [para. 9].

Law of Property Act, R.S.A. 1980, c. L-8, sect. 43 [para. 53].

National Housing Act, R.S.C. 1985, c. N-11, sect. 2 [para. 2]; sect. 26(3)(b) [para. 49].

National Housing Act, S.C. 1953-54, c. 23, sect. 16(3)(k) [para. 70]; sect. 16(4)(g) [paras. 5, 49].

National Housing Act, An Act to Amend, S.C. 1968-69, c. 45, sect. 7 [para. 49].

Rules of Court (Alta.), rule 505(3) [para. 81].

Rules of the Supreme Court of Canada, rule 29 [para. 30].

Statute of Quia Emptores (1289), generally [para. 13].

Authors and Works Noticed:

Cheshire, Fifoot and Furmston, Law of Contract (12th Ed. 1991), p. 349 [para. 50].

Gower, Principles of Modern Company Law (4th Ed. 1979), p. 161 [para. 71].

Meagher, Gummow and Lehane, Equity -- Doctrines and Remedies (2nd Ed. 1984), p. 466 [para. 39].

Palmer's Company Law (24th Ed. 1987), vol. 1, pp. 143, 144 [para. 65].

Sarna, The Law of Declaratory Judgments (2nd Ed. 1988), p. 216 [para. 36].

Stevenson and Côté, Civil Procedure Guide (1989), pp. 986-990 [para. 81].

Zamir, The Declaratory Judgment (1986), p. 191 [para. 38].

Counsel:

Francis C.R. Price, Wesley M. Pedruski and Kent N. Bilton, for the appellant;

Dennis F. Pawlowski and Douglas L. Kennedy, for the Hongkong Bank of Canada;

Donald J. Boyer, Q.C., and Michael R. Kinash, for 375069 Alberta Ltd., 386360 Alberta Ltd. and 376491 Alberta Ltd.;

Robert L. Duke, Q.C., and Lorne A. Smart, for Town House Development Ltd., Wellington Housing Developments Ltd. and Wheeler Holdings Ltd.;

John A. Weir, Q.C., for Kate Wheeler, Pamela K. Wheeler, George L. Wheeler, Lois Anderson and Patricia May Kirk;

Françoise Saint-Martin, for the intervenor, Attorney General of Quebec.

Solicitors of Record:

Reynolds, Mirth, Richards & Farmer, Edmonton, Alta., for the appellant;

Parlee McLaws, Edmonton, Alta., for the Hongkong Bank of Canada;

Bryan & Co., Edmonton, Alta., for 375069 Alberta Ltd., 386360 Alberta Ltd. and 376491 Alberta Ltd.;

Cook, Duke, Cox, Edmonton, Alta., for Town House Development Ltd., Wellington Housing Developments Ltd. and Wheeler Holdings Ltd.;

Weir Bowen, Edmonton, Alta., for Kate Wheeler, Pamela K. Wheeler, George L. Wheeler, Lois Anderson and Patricia May Kirk;

Attorney General of Quebec, Ste-Foy, Quebec, for the intervenor, Attorney General of Quebec.

This appeal was heard on February 4, 1992, before La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, Stevenson and Iacobucci, JJ., of the Supreme Court of Canada.

On January 21, 1993, Sopinka, J., delivered the following judgment for the Supreme Court of Canada in both official languages.

Stevenson, J., did not participate in the judgment.