Law Times

Page 14 June 13, 2016 • Law Times www.lawtimesnews.com CASELAW Supreme Court of Canada Mortgages INTEREST Effect of renewal agreement was to reserve higher charge on arrears than that imposed on principal money not in arrears, contrary to Interest Act Lougheed owned office build- ing and granted mortgage to Equitable Trust to secure $27 million loan. Interest rate was agreed at prime interest rate plus 2.875 per cent per annum. When mortgage matured on June 30, 2008, Equitable Trust agreed to extend term by seven months. "First Renewal Agree- ment," effective Aug. 1, 2008, carried per annum interest rate of prime rate plus 3.125 per cent over first six months and 25 per cent over seventh month. When First Renewal Agreement ma- tured, parties entered into "Sec- ond Renewal Agreement" which provided per annum "interest rate" on loan of 25 per cent. It was effective Feb. 1, 2009, ret- roactive to one month prior to expiration of First Renewal Agreement. Second Renewal Agreement required Lougheed to make monthly interest pay- ments at "pay rate" of greater of 7.5 per cent or prime interest rate plus 4.25 per cent. Difference between monthly payments and amount payable at stated inter- est rate would accrue to loan but would be forgiven if Lougheed made no default. Lougheed defaulted May 15, 2009 and Equitable Trust demanded re- payment at stated rate of 25 per cent. Master found that both re- newal agreements offended s. 8 of Interest Act (Can.). Chambers judge reversed master's decision. Court of Appeal unanimously agreed that First Renewal Agree- ment complied with s. 8 and majority agreed that Second Re- newal Agreement complied with s. 8. Lougheed's appeal allowed. Pursuant to s. 8 of Act, mortgage agreement must not stipulate for, take, reserve or exact fine, pen- alty or rate of interest if effect of doing so imposes higher charge on arrears than that imposed on principal money not in arrears. Section 8 applies to discounts (incentives for performance) as well as penalties for non-perfor- mance. Inquiry is directed to ef- fect of impugned mortgage term rather than term itself. Effect of Second Renewal Agreement was to reserve higher charge on ar- rears (25 per cent) than that im- posed on principal money not in arrears (7.5 per cent or prime plus 5.25 per cent). Use of terms "pay rate" and "interest rate" of no consequence. 25 per cent per annum interest rate set by Sec- ond Renewal Agreement void and instead set at higher of 7.5 per cent and prime interest rate plus 5.25 per cent. Krayzel Corp. v. Equitable Trust Co. (May. 6, 2016, S.C.C., McLachlin C.J.C., Abella J., Cromwell J., Moldaver J., Kara- katsanis J., Wagner J., Gascon J., Côté J., and Brown J., 36123) Decision at 242 A.C.W.S. (3d) 438 was reversed. 265 A.C.W.S. (3d) 223. Sale of Land COVENANTS FOR TITLE Section 29 of the Historical Resources Act (Alta.) limits positive covenants that may run with land Lougheed owned building designated Municipal Histori- cal Resource. To compensate Lougheed for any decrease in value and rehabilitation expens- es, City agreed to pay Lougheed $3.4 million in 15 annual install- ments (Incentive Payments). "Incentive Agreement" imposed restrictions on Lougheed and registered by caveat on title. Lougheed borrowed money from Equitable Trust. Loan was secured by, inter alia, as- signment of Incentive Agree- ment. Lougheed subsequently obtained additional financing from Heritage Capital, assigning its right to Incentive Payments as security. When Lougheed de- faulted on Equitable Trust's loan, Equitable Trust commenced action to enforce its security. Building advertised for judicial sale. Lougheed applied for dec- laration that Incentive Payments were not an interest in land and not included in assets being sold in judicial sale. Master is- sued requested declaration and chambers judge upheld master's declaration, finding that s. 29(3) of Historical Resources Act (Alta.) did not operate such that Incentive Payments could run with land as positive covenant. Majority of Court of Appeal al- lowed Equitable Trust's appeal, finding that Act creates sui ge- neris covenants that displace common law rule that positive covenants do not run with land. Heritage Capital Corporation's appeal allowed. Section 29 of Act does not completely displace common law rule that positive covenants do not run with land but rather limits positive cov- enants that may run with land to those that are in favour of person or organizations listed at s. 29(1), namely: Minister, council of mu- nicipality in which land is locat- ed, Alberta Historical Resources Foundation or historical orga- nization approved by Minister. Exception to common law rule should be limited by precise lan- guage of provision and underly- ing purpose of Act. Chambers judge properly interpreted Act. Although City fell within s. 29(1) list of organizations, covenant to pay Incentive Payments was not in its favour. As result, Incentive Payments did not become an interest that runs with land by virtue of Act. Nor did Incentive Agreement reveal intention that Incentive Payments would run with land. There was no basis on which to disturb chambers judge's findings with respect to contractual interpretation of In- centive Agreement. Chambers judge's conclusion that Incentive Payments were not sold in judi- cial sale was supported by evi- dence. No indication in any sale documents that court intended to sell, or purchaser intended to buy, Incentive Payments. Heritage Capital Corp. v. Equitable Trust Co. (May. 6, 2016, S.C.C., McLachlin C.J.C., Abella J., Cromwell J., Moldaver J., Karakatsanis J., Wagner J., Gascon J., Côté J., and Brown J., 36301) Decision at 248 A.C.W.S. (3d) 224 was reversed. 265 A.C.W.S. (3d) 254. Federal Court of Appeal Customs and Excise APPEAL Canadian International Trade Tribunal did not commit any error in its analysis that "through bill of lading" was required for goods to benefit from General Preferential Tariff treatment Company purchased 1,678 con- tained of various sized, made in China. When containers were shipped from China, company did not obtain through bills of lading or any other shipping documents. Canada Border Services Agency (CBSA) deter- mined that containers did not qualify for General Preferential Tariff (GPT) treatment under Customs Tariff (Can.) because they were not shipped from China to Canada on through bill of lading. Canadian Interna- tional Trade Tribunal dismissed company's appeal from decision of CBSA. Tribunal did not re- view documentation that com- pany had obtained after con- tainers were shipped. Company appealed. Appeal dismissed. Company misunderstood that tribunal had accepted its pro- posed definition of "through bill of lading." Although tribu- nal referred to two definitions proposed by company, it did not specifically adopt them in any part of its reasons. Because tribunal found failed to obtain through bills of lading or any other shipping documents, it was not necessary for tribunal to define through bill of lading. There were simply no shipping documents at all, and this was questions of fact and not subject to review on appeal. Tribunal, however did not commit any er- ror in its analysis with respect to determination that through bill of lading was required in order for goods to benefit from GPT treatment. Containerwest Manufac- turing Ltd. v. Canada (Presi- dent of Border Services Agen- cy) (Apr. 11, 2016, F.C.A., David Stratas J.A., Wyman W. Webb J.A., and Mary J.L. Gleason J.A., A-351-15) 265 A.C.W.S. (3d) 100. Taxation GOODS AND SERVICES TAX Assessment returned to minis- ter on basis that purchaser was entitled to GST/HST new housing rebate in respect of townhouse Minister assessed purchaser under Excise Tax Act (Can.), disallowing claimed GST/HST new housing rebate for purchase of townhouse. Purchaser's ap- peal was dismissed. Purchaser appealed. Appeal allowed. Tax Court judge found that purchas- er intended to use townhouse as her primary place of residence but that she was not entitled to rebate as condition in s. 254(2) (g)(i)(A) of Act was not satis- fied because she never occupied property. Tax Court judge erred in law by failing to consider where purchaser qualified for rebate by satisfying s. 254(2)(g) (ii) of Act, which was alternate means for satisfying condition in s. 254(2)(g) of Act. Minister acknowledged that purchaser satisfied s. 254(2)(g)(ii) of Act but argued that purchaser still did not qualify for rebate. Min- ister argued that Tax Court judge erred in law by relying solely upon purchaser's evidence about her intent without consid- ering objective manifestations of purpose. Evidence of objective manifestations was adduced by minister through purchaser's oral testimony, which made Tax Court judge's reference to "after hearing evidence of purchaser" at least somewhat ambiguous. Applying presumption that Tax Court judge knew and under- stood applicable law, it was not clear that Tax Court judge made palpable and overriding error in finding purchaser's testimony sufficiently credible to overcome circumstantial evidence sug- gesting lack of requisite intent. More troubling was Tax Court judge's statement during closing argument that he did not need to hear from minister's counsel but issue of purchaser's intent was squarely raised in minister's pleadings and purchaser was cross-examined on minister's assumptions about intent. Issue of intent was in play such that minister was heard on this is- sue. Tax Court judge's judgment would be set aside and judgment that should have been made would be pronounced, with as- sessment returned to minister on basis that purchaser was en- titled to GST/HST new housing rebate in respect of townhouse. Ranjbar v. R. (Apr. 15, 2016, F.C.A., Eleanor R. Dawson J.A., D.G. Near J.A., and Rich- ard Boivin J.A., A-344-15) 265 A.C.W.S. (3d) 258. Federal Court Harbours GENERAL Regulatory scheme applicable to marine transportation secu- rity has low standard and based on assessing possibilities Applicant was longshore worker whose marine transportation security clearance was cancelled. Transport Canada received Law Enforcement Record Check from RCMP that indicated ap- plicant had no known criminal convictions, but had been seen shaking hands with member of Hell's Angels, was arrested for aggravated assault after leaving scene of fight but not charged, was identified as passenger of ve- hicle with member of Hell's An- gels, was arrested but not charged with threatening to shoot up bar and displayed violent behaviour to police, was arrested but not charged with mischief and was suspected of being on drugs at time, and was with known criminals in latter two incidents. Transport Canada advised ap- plicant of concerns and appli- cant responded by explaining he was not affiliated with Hell's Angels and only shook hand of man he had previously met to be polite, was helping cousin who was being beaten, did not recall being stopped while pas- senger in vehicle, bar incident arose from misunderstanding, and mischief incident occurred when he was intoxicated and fell into window. Minister accepted Advisory Board's recommenda- tions that applicant's response did not dispel its concerns about his judgment, trustworthiness and reliability, and cancelled his security clearance. Application for judicial review. Application dismissed. Minister's reasons were terse and would have bene- fitted from more comprehensive analysis of applicant's submis- sions, but applicant's real com- plaint was weight Minister gave to his submissions and its pref- erence for LERC report. Regu- latory scheme was intended to screen out candidates who pre- CASELAW CaseLaw is a weekly summary of notable civil and criminal court decisions by the Supreme Court of Canada, the Federal Court of Canada, and all Ontario courts. These cases may be found online in BestCase and other electronic resources from carswell.com. To subscribe, please call 1-800-387-5164.

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