Alberta Court Upholds Land Titles System

    Homestead Record, Alberta Archives

In Alberta, all interests in land are recorded in a Torrens registration system, often referred to as a "Land Titles" system.  A title search produces a certificate listing all registered interests in the parcel of land searched.  Anyone interested in acquiring the land can rely on the certificate as a complete list showing who owns the property and any mortgages, liens, or other interests effecting title.  Unregistered interests are not protected.  The only exception is in cases of fraud.

 

This system can sometimes lead to harsh results, as is illustrated in a recent case in the Albert Court of Queen's Bench.  A builder constructed a "show home" on a lot in a development, relying on a contract that said the developer had to transfer title in the lot to the builder once construction of the show home began.  All of the lots in the development were subject to a mortgage in favour of the Bank of Montreal.  The developer went into receivership without transferring title to the builder, although the builder had nearly completed the home.  The receiver sold the property, and it was agreed that the value of the home (as opposed to the lot itself) was in excess of $140,000.  This amount was placed in a trust account until entitlement to the proceeds could be determined in court.

 

The court concluded that the Bank's registered mortgage had priority over the unregistered equitable interest claimed by the builder based on unjust enrichment: Bank of Montreal v. 1323606 Alberta Ltd., 2013 ABQB 596.

 

The builder, Coco Homes Ltd., claimed an equitable interest in the proceeds, arguing that if the money went to the Bank it would be acquiring the benefit of the construction work without paying anything for it; essentially, an unjust enrichment argument.  Coco also relied on s. 69 of the Law of Property Act, RSA 2000, c. L-7, which creates a statutory lien in favour of someone who has made a lasting improvement to land in the belief that he owned it.

 

The Bank's case was based on s. 203(2)(a) of the Land Titles Act, RSA 2000, c. L-4.  Section 203 states that anyone dealing with a transfer, mortgage, or other interest in land is not bound by a trust or other interest in the land unless it is registered in the Land Titles system.  In addition, section 203(2)(b) provides that a party dealing with the land is unaffected by any notice of a trust or other unregistered interest in the land or by any rule of law or equity that might create an interest in the land.

 

Madam Justice Topolniski considered the public policy basis for the Torrens system, stating that the certificate of title "...is designed to meet a simple policy goal - to provide a clear, definitive mechanism to evaluate the status of land".  The objective of the system is to save purchasers and mortgagees the trouble and expense involved in going behind the register in order to investigate the validity of the owner's title.

 

The judge acknowledged that a Torrens system can impose hardships, noting that the legislation provides for compensation for those who suffer a loss out of an assurance fund.

Relying on decisions of the Supreme Court of Canada and the Ontario Superior Court, Justice Topolniski concluded that the legislation was a complete bar to the homebuilder's claim.  Under a Land Titles system, an unregistered interest has no effect on the registered title of a purchaser for value: United Trust Co. v. Dominion Stores Ltd., [1977] 2 S.C.R. 915.  Section 203 of the Act "represents an unequivocal abrogation of the doctrine of actual notice in Alberta such that, absent fraud, an unregistered interest cannot under any circumstances trump a registered interest.": Romspen Investment Corp. v. Edgeworth Properties, 2012 ONSC 4693.  The effect of s. 203 of the Land Titles Act is to extinguish Coco's claim, whether it arises out of common law, equity, or statute.

With respect to the argument under s. 69 of the Law of Property Act, the judge concluded that granting priority to an unregistered interest would defeat the intent of the legislature in adopting the Torrens system.  Section 69 applies where a person improves someone else's land "under the belief that the land was the person's own".  Although Coco had a contractual right to a transfer of title, it could not have held an honest belief that it owned the land at the time the developer went into receivership, so the claim under s. 69 failed.

Coco argued that the Bank could not take title to the improvements under the Nemo Dat rule (nemo dat quod non habet, or "no-one gives what he doesn't have").  Since the developer had not paid for the improvements, it didn't own them and couldn't mortgage them to the Bank.  The judge rejected this argument because fixtures permanently attached to the land become part of the land.

Finally, the court rejected the constructive trust argument, citing Supreme Court authority stating that a constructive trust cannot apply to the prejudice of a third party: Soulos v. Korkontzilas, [1997] 2 S.C.R. 217.

Although the outcome may seem like a windfall for the Bank, which did not finance the construction of the model home, on reflection it is fair.  The homebuilder was free to search title prior to starting work, and would have been aware that the lot was subject to a mortgage in favour of the Bank.  Coco could have insisted that the developer make arrangements to have the mortgage discharged before it built the home, and could have stopped work as soon as it became clear that the developer was not going to transfer title.

It is in the public interest that there should be a searchable registry available that provides an interested party with a complete picture of the state of title, so that people who buy, sell, and mortgage property know where they stand when they enter into a transaction.  As the judge determined, the legislature intended to provide such a registry when it created the Land Titles system, and giving registered interests priority over unregistered claims based on trust or statute is a necessary consequence.

Bank of Montreal v. 1323606 Alberta Ltd., 2013 ABQB 596

Contact Richard Hayles at Billington Barristers:

(403) 930-4106

RHayles@BillingtonBarristers.com

Visit our website: http://billingtonbarristers.com

View my profile on LinkedIn: Richard Hayles on LinkedIn



Any legal information provided is general in nature and may not apply to particular situations. It does not constitute legal opinion or advice. Please consult your lawyer regarding your specific legal issue.

No Juries For Insurance Misrepresentation Cases

     Does trial by jury lead to chaos in the courtroom?

In a decision released Friday, the Alberta Court of Appeal denied the plaintiff's application for a jury trial in a life insurance claim: Coulter v. Co-operators Life Insurance Company.  The two Justices in the majority agreed that the insurer's misrepresentation defence was a claim for equitable relief which cannot be tried by a jury.  The dissenting Justice, who characterized the misrepresentation defence as statutory rather than equitable, would have permitted a jury trial.

The Misrepresentation Defence

 

The life insured was a long-time policyholder with Co-operators who applied for additional coverage less than two years before his death.  After investigating the claim, Co-operators paid the benefit on the original policy, but denied the additional benefit, taking the position that it was entitled to void this coverage as the life insured had misrepresented important facts on the recent application.  Co-operators relied on ss. 652 and 653 of the Alberta Insurance Act, R.S.A. 2000, c. I-3, which state that misrepresentation of a material fact in the life insurance application renders the coverage voidable by the insurer within the first two years after coverage takes effect.

 

The Alberta statutory provisions are derived from uniform life insurance legislation, and similar provisions are in effect in all the common law provinces and territories of Canada.

 

When the beneficiary sued, Co-operators raised the misrepresentation issue in its statement of defence, citing the Insurance Act provisions.  The defendant was content to defend on this issue, and did not counterclaim for rescission of the insurance contract.  The beneficiary applied for a jury trial, but this application was denied by the Chambers Judge, who directed that the trial should proceed by judge alone.

The Majority Decision
 

In the majority opinion, Mr. Justice Cote referred to the historical distinction between the common law courts and courts of equity.  In civil cases, the common law courts could award damages for breach of contract and other legal wrongs.  A broader range of remedies was available in the equity courts, including specific performance and declaratory relief.  Jury trials were available in the common law courts, but not in the courts of equity, where cases were decided only by judges.

 

Although the two courts are now joined into one, the distinction between common law and equity remains, and juries are not permitted in cases in which equitable relief is claimed.

 

There was no dispute that the plaintiff was claiming damages for breach of the insurance contract, and that this was a common law claim.  According to Mr. Justice Cote, however, the defence raised by Co-operators was essentially a claim for rescission of contract.  This was an equitable remedy, and since common law courts are restricted to damages, a jury could not decide the misrepresentation question.  The Chambers Judge was therefore correct in denying the application for a jury trial.

 

Justice Cote was careful to point out that although the reasons for denying the plaintiff a jury trial may seem to be based on a technical historical distinction, there are sound policy reasons for restricting equitable relief to judges.  Equitable remedies are discretionary.  In exercising their discretion judges are guided by previous cases, and by principles established in maxims such as "Delay defeats equities", and "He who seeks equity must do equity".  In the view of Mr. Justice Cote, the distinction between the principled exercise of a discretion and "mere sympathy or fairness" would be "almost impossible" to explain to a jury.  These cases are therefore unsuited to trial by jury.

 

In a claim for breach of contract or tort, on the other hand, the judge instructs the jurors that they must award damages if they conclude that the evidence supports certain findings of fact; there is no discretion involved.

The Dissent

 

In his dissenting judgment, Mr. Justice O'Ferrall seemed to accept that equitable claims involving the exercise of discretion are unsuited to trial by jury; in his view, however, the insurance company was not claiming equitable relief at all.

 

"Rescission" was not specifically pleaded.  In its statement of defence, Co-operators said that it was entitled to "void the policy" by virtue of the Insurance Act provisions.  This was a statutory defence rather than an equitable claim, and "What the jury would be asked to do in this case is determine whether or not the insured ... made a misrepresentation with respect to a fact or facts material to the insurance."  In his opinion, this was the kind of factual question that juries are especially well qualified to decide.  There is a presumption in favour of the right to trial by jury, which should be respected.

 

For the majority, however, Mr. Justice Cote pointed out that the Insurance Act provisions did not purport to displace the role of equity or replace the equitable remedy of rescission of contract.  The statute did not provide a comprehensive code for misrepresentation cases, such that it could be concluded that the legislature intended to occupy "the whole field" and do away with the role formerly carried out by courts of equity.

A View From the Bleachers

 

Justice Cote is right to prefer a principled or policy-based approach over reliance on the historical accident of the division between equitable and common law courts.  Where legal issues are more important to the case than factual issues, judges have an extensive knowledge of the law that jurors lack.  Jurors, on the other hand, are just as qualified as judges to decide whether or not a witness is lying, or to assess evidence and make findings of fact.

The jury is an important institution in our society.  Justice is delivered by members of the community who can bring a diversity of background and experience to the courtroom, rather than by a judicial "expert" with extensive, but perhaps narrow, training in one area (the law).  The jury introduces a populist, democratic element into our system of justice.  Trial by jury is a long-standing right that should only be taken away for cogent reasons.

It is conventional wisdom that an insurance company never wants to face a jury.  The man in the street will always be blinded by sympathy and emotion, it is thought, and will side with the individual plaintiff over the big, impersonal corporation every time.

This is not necessarily the case.  Several years ago, defence-side insurance lawyers in Ontario began to serve jury notices routinely in personal injury cases, believing that their clients would be better served by the practical, common-sense approach of jurors.  Whether to seek a jury trial is a question that both plaintiff and defence counsel should ask themselves in every case; it is a strategic decision that depends on more than just the sympathy factor.  A precedent that denies the life insurance beneficiary her claim to a jury trial cuts both ways, as insurers will not be able to put their defences to juries in future cases.

What about the Coulter case? Although it is easy to see how the discretionary aspects of certain equitable remedies, such as injunctions and specific performance, might be difficult for jurors without any legal training, it is unclear how equitable principles or maxims could come up in a misrepresentation case.  The issue is whether or not the insured misrepresented important facts on the application.  This is something a jury can decide.  Since the conduct of the insurance company is not in issue, maxims like "He who seeks equity must do equity" or "He who comes to equity must come with clean hands" don't have any bearing.  Delay is not a factor, as the insurer can only raise non-fraudulent misrepresentation within the two year incontestability period established by the insurance legislation.

 

The availability of jury trials in misrepresentation cases should be based on a pragmatic assessment of the real issues in the case, and not on the somewhat arbitrary fact that "rescission" of contract is historically a remedy granted by courts of equity.

 

Coulter v. Co-operators Life Insurance Company, 2013 ABCA 295

 

Contact Richard Hayles at Billington Barristers:

(403) 930-4106

RHayles@BillingtonBarristers.com

Visit our website: http://billingtonbarristers.com

View my profile on LinkedIn: Richard Hayles on LinkedIn



Any legal information provided is general in nature and may not apply to particular situations. It does not constitute legal opinion or advice. Please consult your lawyer regarding your specific legal issue.