31 Priority Of Caveat Or Certificate Of Pending Litigation

PRACTICE

Relationship between Sections 30 and 31

Section 30 governs in the case of registration of a purchase under a power of sale in a mortgage, or in the case of a mortgagee claiming under a final order of foreclosure. Section 31 is of more general application, but with respect to mortgages it governs when a mortgagee, instead of proceeding by foreclosure or power of sale, takes a transfer (formerly, a quit claim) from the mortgagor.

CROSS REFERENCES AND OTHER SOURCES OF INFORMATION

Under s. 293 of the Act, a caveat lapses unless the caveator commences an action within two months of lodging the caveat.

See Di Castri, Registration of Title to Land, vol. 2, §14:85 and §15:4.

CASE LAW

Priority over Subsequent Claims

A certificate of lis pendens filed in the land title office constitutes a bar to affidavits of lien filed respecting the same land where the circumstances that give rise to the claims for a lien arise subsequent to the date of registration of the lis pendens (Fraser River Ventures Ltd. v. Yewdall (1958), 27 W.W.R. 368 (B.C. Co. Ct.)).

When a lis pendens has been registered against land and the plaintiff’s claim is subsequently established by judgment, the plaintiff is entitled to claim priority over any charge registered after initial registration of the lis pendens (Re Qualicum Beach, 1982 CanLII 263 (BC SC)).

If a mortgagor establishes a claim by obtaining judgment giving a right to redeem, the judgment gives the mortgagor priority over all applications to register filed after the mortgagor’s lis pendens (Pacific Savings and Mortgage Corp. v. Can-Corp Development Ltd., 1982 CanLII 463 (BC CA)).

Note: The Pacific Savings and Mortgage decision should be read in the context of the law of foreclosure, which, in British Columbia, still draws upon equitable principles permitting the court to re-open foreclosure proceedings unless and until the property is sold to a bona fide purchaser for value.

Prior Registrations

Registration of a mortgage was still pending when a lis pendens was filed claiming that title had been obtained contrary to the Fraudulent Conveyance Act. The mortgagee had no prior notice or knowledge of the claim and had not colluded in fraud. To the extent that the mortgage was a completed transaction, it took priority over the lis pendens (First Citizens Finance Co. Ltd. v. Registrar of Title, Vancouver Land Titles Office (1982), 26 R.P.R. 304 (B.C.S.C.)).

Mortgage Discharge by Mistake

The respondent had two mortgages registered against title to her property. She paid off the second $25,000 mortgage but the mortgagee mistakenly discharged the larger first mortgage of $58,000. The respondent’s former employer filed a certificate of pending litigation against the property. The mortgagee then re-registered the $58,000 mortgage and brought this action for a declaration that its $58,000 mortgage ranked in priority over the certificate of pending litigation. The court considered s. 31 of the Land Title Act and held that the certificate of pending litigation had priority (Ryan Mortgage Income Fund Inc. v. Revesz, 2015 BCSC 1734).

See also the annotation for Bank of Nova Scotia v. Titanich, 2014 BCSC 1129 (Master) under ss. 216 and 383 of the Act.

Vendor’s Lien

The appellants and respondents were registered as owners of a development property in Vancouver. The appellants transferred their title in the property to the respondents on the promise of a mortgage so the respondents could deal freely with the property during the construction phase. The purchase price was never paid to the appellants nor secured by a registered mortgage. After the appellants registered a certificate of pending litigation against the property, the respondents registered a mortgage in favour of a number of third parties. Several builder’s liens were also registered against the property and the property was eventually sold for tax arrears. At trial, the court dismissed the appellants’ claim for a vendor’s lien. The Court of Appeal, relying on its earlier decision in Gordon v. Hipwell, 1952 CanLII 236 (BC CA), confirmed that legislation (such as the Land Title Act) providing for modified Torrens land titles registration does not make obsolete all rules of law and equity relating to land. An unpaid vendor who has conveyed without receiving security may very well need a lien in the absence of a manifest intention that the lien should not exist. A vendor’s lien was a right created for this purpose by a rule in equity without the requirement of any special contract. The Court of Appeal found that, as between the appellants and the respondents, a vendor’s lien did arise and that the respondents could not, in good conscience, keep the property without paying for it (Chu v. Chen, 2004 BCCA 209). In further proceedings, the Court of Appeal considered the question of priorities as between the appellants’ lien and the third parties who had advanced monies to the respondents on the promise of a mortgage without knowledge that the respondents had not paid the appellants the purchase price for the property. The court inferred that the appellants, by not obtaining and registering a mortgage or some other instrument during the construction phase of the development, intended that the respondents be able to raise money on the security of the property in priority to their interests in the land. However, once the appellants filed a certificate of pending litigation claiming an interest in the land on the basis of a vendor’s lien, the court was obliged to fashion a remedy for all of the parties that afforded a fair and equitable result without harm to established legal or equitable principles. In considering these principles and the positions of the parties, the court found that the third parties were entitled to rank pari passu with the appellants in perfecting their claims to the proceeds from the tax sale (Chu v. Chen, 2005 BCCA 434, supplementary judgment 2006 BCCA 475).

Priorities in Family Matters

Notes on Case Law: The following cases were decided under the Family Relations Act (repealed March 18, 2013 by B.C. Reg. 131/2012). These cases represent only a sample of cases considering the priority of claims in circumstances involving the reapportionment of interests under the Family Relations Act. In such cases, priority is not based solely on the registration dates of the certificate of pending litigation and competing charges or claims; rather the courts have held that priority turns on the date of the triggering event under s. 56 of the Family Relations Act relative to those registrations. Section 81 of the Family Law Act provides that the triggering event is the date of separation. See the transitional provisions in s. 252 of the Family Law Act in chapter 42 (Family Matters) with respect to proceedings in relation to the division of property commenced under the Family Relations Act before its repeal on March 18, 2013.

A wife obtained a s. 57 declaration under the Family Relations Act and filed a lis pendens against the matrimonial home before the registration against title by Revenue Canada of judgments against the husband. In spite of these judgments, the court was able to reapportion the spouses’ interests in the matrimonial home entirely in the wife’s favour. The wife’s interest in the matrimonial home arose as at the date of the triggering event. The scheme of the Family Relations Act dictates that a reapportionment under s. 65 of that Act be made as of that time. As a result, Revenue Canada’s judgments filed after the triggering event attached only to the interest that the husband had in the property after the triggering event. If this analysis was incorrect, the combined effect of s. 31 of the Land Title Act and ss. 56 and 65 of the Family Relations Act is to “give priority” to a spouse’s interest “back to the date when the lis pendens is filed” (Hall v. Hall, 1990 CanLII 724 (BC SC)).

Section 31 of the Act is more than simply a notice provision. It does not create priorities per se, but it recognizes a right to claim priority in a person who ultimately establishes their interest in property. Where that interest is established by a reapportionment of interests under s. 65 of the Family Relations Act, the reapportionment takes effect from the date of the triggering event under s. 56 of that Act. In this case, the spouse applying for reapportionment of interests in the matrimonial home registered a lis pendens before Revenue Canada registered a judgment against her husband’s interest in the home. However, both the lis pendens and the judgment were registered before the triggering event. The court held that the judgment attached to the husband’s interest before the date of the triggering event, with the result that the court could only reapportion his interest subject to the judgment (Antenen v. Antenen (Guardian ad Litem of), 1992 CanLII 204 (BC SC)).

In divorce proceedings, the plaintiff claimed, as a family asset, an undivided one-half interest in a property registered in her husband’s name. In a related action heard at the same time, the plaintiff’s mother-in-law claimed the property was held in trust for her benefit and for the benefit of her family. The property was acquired in 2002 with funds advanced solely from the mother-in-law’s trust fund. Title was registered in the son’s name. The plaintiff and the son separated in 2007. As part of the separation, the son agreed to transfer title to the property to the plaintiff. Before the transfer was registered, the mother-in-law filed a caveat against the title and launched an action against her son for a declaration of resulting trust. The court found overwhelming evidence to support the mother-in-law’s claim that, at the time of the transfer of funds to purchase the property, the mother-in-law intended that she remain as the beneficial owner of the property. There was no evidence she intended the advance to her son as either a gift or a loan. As a consequence, at the time the caveat was filed, it served to place the parties on notice that the mother-in-law had a pre-existing claim to an interest in the property. Accordingly, the property was not a family asset and priorities between the plaintiff and her mother-in-law were to be determined under the Land Title Act and not the Family Relations Act. The court ordered that title to the property be registered in the name of the mother-in-law’s trust or its nominee (Fulton v. Gunn, 2008 BCSC 1159).

Priorities Involving the Builders Lien Act

After a debenture holder registered a lis pendens against properties, several claims of builders lien were filed relating to work done or materials delivered to those properties before the date that the lis pendens was registered. In determining the priorities between the debenture holder and lien claimants, the court found that a lis pendens registered under this section does not create any substantive rights but is merely a form of notice. Section 31 does not create or affirm priority; rather the holder of a lis pendens is “entitled to claim priority”, and then only if that claim is subsequently established by a judgment or order. The subsequently registered claims of lien under s. 11 of the Builders Lien Act, S.B.C. 1997, c. 45 are more concerned with substantive rights. Once filed, they take effect from the date of commencement of the work and have priority over all judgments made after the liens take effect (Royal Bank of Canada v. Vista Homes Ltd., 1985 CanLII 470 (BC SC)).