COURT NEWS: Released 24 March 2004
Between: 664847 B.C. Ltd. Petitioner
And
TT Land Development Inc., Milverton Capital Corporation and Aarzen Blowers and Compressors of Canada Inc. Respondents
courts.gov.bc.ca
Cayman
[1] THE COURT: The respondents Milverton Capital Corporation and Aerzen Blowers and Compressors of Canada appear on this application to determine the priorities between them in respect of the proceeds of the sale of land at 11611 Twigg Place, Richmond, B.C.
[2] While there are a number of procedural defects affecting the application, some of which were initially the subject of objection by Aerzen, the parties have now agreed that, the priorities issue having been fully argued, the court ought to determine the matter on this application. I will accordingly treat this application as if it were an application for direction as to which of the parties holds priority over the proceeds of sale.
[3] The factual background is somewhat complex. In the final analysis, however, the issue is whether a crystallized floating charge over the land registered in the personal property registry but not registered against title to the land takes priority over a judgment registered against title.
Factual Background
[4] Thermo Tech Technologies Inc. is a company engaged in the development of innovative processes to deal with waste. The corporate structure of Thermo Tech Technologies and its subsidiaries is complex. For the purposes of this application it is sufficient to recognize that Richmond Bio Conversions Inc. is a subsidiary of Thermo Tech and that TT Land Development Inc. is a subsidiary of another related subsidiary of Thermo Tech.
[5] TT Land Development held title to land at 11611 Twigg Place. It is common ground between the parties to this application that, while not indicated on title, the land was held by TT Land Development in trust for Thermo Tech Technologies Inc. and Richmond Bio Conversions Inc. It is not, for the purposes of this application, necessary to determine how the beneficial interest was split as between the parent company and the subsidiary.
[6] Milverton Capital Corporation was the major financier of Thermo Tech. In March of 2000 it entered into general security agreements with Richmond Bio Conversions Inc. and Thermo Tech Technologies Inc. These agreements gave Milverton a floating charge over all of the companies' assets, including real property. The general security agreements were registered in the personal property registry on March 17th, 2000.
[7] Milverton also held additional security over the subject land. It held a mortgage on Richmond Bio Conversions' lease on the property and also held an assignment of rents and an option to purchase. These three charges on the land were properly registered against title. The principal amount of the mortgage of the lease was $13,170,475.49. The expiry date of the lease was April 2005, although it was renewable.
[8] Aerzen supplied certain equipment to the Thermo Tech facility and in November of 2000 Aerzen registered a charge in respect of the equipment against Thermo Tech and Richmond Bio Conversions in the personal property registry.
[9] In the fall of 2001 Thermo Tech became insolvent. It was unable to meet the demands made upon it by, among others, Milverton. It is alleged by Milverton and not disputed by Aerzen that the floating charges held by Milverton crystallized at that time. In December of 2001 Milverton commenced an action against Thermo Tech and Richmond Bio Conversions, seeking to recover almost $8 million owed to it.
[10] In March of 2002 Aerzen commenced action against Thermo Tech and Richmond Bio Conversions, having not been paid for the equipment and having found that the equipment had vanished. Aerzen included TT Land Developments Inc. as a defendant, alleging that it held property in trust for Thermo Tech and Richmond Bio Conversions. In October 2002, in an unopposed summary trial, Aerzen obtained judgment against the three defendants in the amount of $240,215 plus prejudgment interest in the amount of $44,716.20. It registered the judgment against the subject property on March 20, 2003.
[11] In December 2003, the petitioner sought to purchase the subject property and commenced its proceeding seeking approval of the sale. In February of this year Milverton discharged its charges against the property, purportedly without prejudice to its rights against the proceeds of sale.
[12] The sale went ahead. No attempt was made to allocate a specific amount of the buy-out of Richmond Bio Conversions lease as opposed to the fee-simple interest. Aerzen was not involved in the negotiations preceding the sale and at no time did it agree that Milverton's charges against the land would be preserved against the proceeds of sale.
[13] Aerzen subsequently removed its judgment from title on the basis that proceeds of sale equal to the amount of its judgment would be held in trust pending determination of the priorities. I am advised that the net proceeds of sale are, in round numbers, about $530,000.
Analysis
[14] I am satisfied that both Milverton and Aerzen have valid claims to the proceeds. The general securities agreements that Milverton entered into with Thermo Tech and with Richmond Bio Conversions clearly granted it a floating charge over real property and that charge crystallized by late 2001. For its part, Aerzen obtained a judgment against Thermo Tech and Richmond Bio Conversions, which judgment was registered against the subject property in March of 2003, several months before the property was sold.
i. The Lease of the Mortgage
[15] In terms of title to the real property, Milverton argues that the registration of the mortgage over the lease gives it priority over the subsequently registered judgment of Aerzen. I cannot accept that proposition. The lease and the fee-simple remainder are separate interests in land and Milverton's mortgage over the lease cannot be treated as if it were a charge on the fee-simple. Only the portion of the purchase price attributable to the lease can be said to be secured by the mortgage.
ii. Effect of Registration in the Personal Property Registry
[16] Milverton also argues that the registrations of the floating charges in the personal property registry should be treated as if they were registrations against the title to the land. In this regard it relies on Section 203 of the Land Title Act, R.S.B.C. 1996, c. 250, which provides that the personal property registry established under the Personal Property Security Act, R.S.B.C. 1996, c. 359 is the proper office for the registration of an uncrystallized floating charge. Section 203(10) of the Land Title Act provides that "priority between crystallized floating charges that charge the same parcel of land must be determined by the date of registration [in the personal property registry]."
[17] In my respectful view, these sections do not assist Milverton. We are not here concerned with priorities between two crystallized floating charges. Rather, we are concerned with the priority between a crystallized floating charge and a judgment registered against real property.
[18] Section 203(6) of the Land Title Act allows for the registration of a crystallized floating charge in the Land Title Office. That registration is provided for precisely because registration of the uncrystallized charge in the personal property registry does not result in that charge’s priority over subsequent charges registered in the land title office. Section 44(7) of the Personal Property Security Act and section 29(3) of the Land Title Act make it clear that, with the exception of priorities among crystallized floating charges, registration in the personal property registry does not assist the holder of a floating charge in terms of priority over other charges registered in the Land Title Office.
[19] I must treat this case, therefore, as one in which Milverton's security registered against title to the property was limited to security against the leasehold interest. Aerzen's security was registered against the fee simple interest.
Priority of a Registered Judgment as against Unregistered Charges
[20] Notwithstanding that Milverton did not register its crystallized floating charges against the land, it is my view that those charges take priority over Aerzen's registered judgment.
[21] Counsel for Milverton cites the case of Andrekson v. Peerless Pipe and Equipment (1982), 139 D.L.R.(3d) 556, a case in which our Court of Appeal held that a floating charge took priority over a registered judgment even though it was assumed that the charge did not crystallize until after the registration of the judgment. The court held that until a judgment creditor takes steps to execute against land, its charge does not take priority over a subsequently crystallized floating charge, even where the floating charge has not been registered against the land.
[22] The case at bar is a stronger one than Andrekson in that the floating charge in this case crystallized prior to the registration of the judgment. It would seem, therefore, that Andrekson would be controlling.
[23] It must be recognized, however, that Andrekson concerned a judgment registered under a system in place before the changes that occurred on October 31st, 1979. Under the old system, judgments were registered in an alphabetical list in the Land Title Office rather than against individual properties. Andrekson also predates, of course, the Personal Property Security Act.
[24] In examining other cases, I am satisfied that an unregistered floating charge takes priority over a registered judgment, at least where the floating charge has crystallized prior to the registration of the judgment. In Yeulet v. Matthews (1982), 133 D.L.R. (3d) 399, Low L.J.S.C. (as he then was) reviewed the issue of the priority of registered judgments over chronologically prior unregistered charges. He undertook an extensive examination of the jurisprudence on the matter in British Columbia. Citing Jellett v. Wilkie (1896), 26 SCR 282, he noted that, despite the existence of a Torrens system, a judgment creditor can only sell the land of a judgment debtor subject to all charges, liens and equities that the land is subject to in the hands of the judgment debtor. The judgment creditor can take no greater interest in the land than the judgment debtor holds. Low L.J.S.C. noted that section 20 of the Land Title Act provides that an unregistered instrument is ineffective "except as against the person making it."
[25] Section 20 of the Land Title Act preserves the effect of an unregistered instrument as against the property owner. The judgment creditor, therefore, who can attach only the interests of the judgment debtor, cannot take priority over an existing charge on the property even if that charge is unregistered.
[26] Like the slightly later Andrekson case, Yeulet was concerned with a judgment registered under the old system rather than a judgment registered as a charge against a specific parcel of land.
[27] Shortly after Yeulet, however, in Woollends v. Woollends (1982), 41 BCLR 357, Cowan, L.J.S.C. (as he then was) affirmed that a judgment registered against specific land of a judgment debtor pursuant to the Court Order Enforcement Act attaches the interest of the judgment debtor subject to all charges, liens and equities to which the land is Subject in the hands of the judgment debtor. This will be so even if those charges, liens and equities are unregistered.
[28] Woollends concerned a judgment registered against a specific parcel under what is now Section 86 of the Court Order Enforcement Act, R.S.B.C. 1996, c. 78. Noting the wording of what is now Section 86(3)(a) of the Act, which provides that judgment forms a lien and charge on the land "to the extent of the judgment debtor's beneficial interest in the land," Cowan L.J.S.C. held that the decision in Yeulet v. Matthews remained applicable to judgments registered after October 30th, 1979.
[29] More recently the Court of Appeal reached a similar conclusion on somewhat different facts in Martin Commercial Fueling Inc. v. Virtanen (1997), 144 D.L.R. (4th) 290.
[30] In the case at bar, Milverton's floating charges had crystallized prior to the registration of Aerzen's judgment against the land. While the crystallized charges were not registered in the Land Title Office, they were valid charges against the judgment debtor's interest in the property and the registration of the judgment did not serve to give Aerzen any greater interest in the land than the judgment debtor had. Accordingly, Milverton's security ranks ahead of Aerzen's in attaching the proceeds of sale.
[31] It appears to be common ground that Milverton's crystallized floating charges secure several million dollars worth of debt. In the circumstances it would appear that all the net proceeds of sale will go to Milverton.
[32] Milverton will have the costs of this application on Scale 3.
“H.M. Groberman, J.”
The Honourable Mr. Justice H.M. Groberman |
