The legislation found in the British Columbia, Land Title Act, (the “LTA”) can be complicated, difficult to understand, and often requires the simultaneous consideration of multiple sections of the LTA, as well as an understanding of the relevant case law.

The British Columbia Court of Appeal rendered the decision in Chichak v Chichak, 2021 BCCA 286 CanLII , which overturned much of the reasoning of the Supreme Court decision of MCAP Service Corporation v Chichak, 2018 BCSC 1892 CanLII. Chichak dealt with a judgment creditor seeking to enforce a claim against real property where an unregistered interest in real property allegedly existed in favour of the spouse of the judgment debtor. The lower Supreme Court decision relied on another then recent decision, Gully v Gully, 2018 BCSC CanLII, which is somewhat problematic.

Gully dealt with a mother who had added her son as a joint tenant to her principal residence based on estate planning advice she received at the time. The son’s subsequent creditor later decided to pursue the son’s interest against the property. The mother argued that the son merely held his registered interest in the property on a resulting trust while she retained beneficial interest in the property. However the evidence accepted by the court was that the mother did in fact intend to gift a beneficial interest (not just a registered interest or merely a gift of right of survivorship) in the property to her son. The court relied on the provisions of the mother’s Will that read as follows. para 9:

… “I declare that I contemplate naming my son and others as joint owners of some of my assets, or designated beneficiary of my RRSP, insurance and other investments, it being my intention that upon my death, such to belong to the named beneficiary, at law and in equity, and that such are not to be shared or allocated to other persons”

Accordingly, para 12 held:

“I am satisfied that it was the intention of Ms. Gully to gift an interest in the Burnaby Property in favour of Mr. Gully when the joint tenancy was registered in 2015, as described in the 2015 Will. As such, I find that Mr. Gully does not hold the Burnaby Property on a resulting trust in favour of Ms. Gully.”

If in fact this was the mother’s intention then the outcome in Gully is correct. However there is some confusion regarding this finding in that it seems plausible, if not likely, that the “gift” that was really conveyed from mother to son, as referenced in the mother’s Will, was limited to a gift of the rights of survivorship in the Burnaby Property rather than an absolute and immediate gift of the entire beneficial interest in the Burnaby Property. The law relating to jointly held assets such as this are aptly summarized by Madame Justice Francis in Petrick (Trustee) v Petrick, 2019 BCSC 1319 , which sets out three primary types of joint tenancy scenarios in terms of beneficial interests; one of which is referred to as merely a “gift of right of survivorship,” see para 40 c).

Gully nonetheless went on to find at para 20:

“…even if I accepted that she did not intend the gift to her son at the time she registered Mr. Gully’s interest, this argument may have some bearing on a dispute between family members, but by virtue of the Land Title Act it has no bearing on the interests of third parties such as Ledcor.”

This latter comment created confusion in Chichak, as well as in other cases involving judgment creditors ability to enforce their judgments against real property registered in the name of judgment creditors. No authorities are cited for the above proposition other than a brief review of sections 23 and 29 of the Land Title Act. Other key sections of the LTA such as s. 26 (i.e. “Registration of a charge does not constitute a determination by the registrar that the instrument in respect of which the charge is registered creates or evidences an estate or interest in the land or that the charge is enforceable.”) are not referred to. Similarly none of the case authorities from the Supreme Court of Canada, British Columbia Court of Appeal, or Supreme Court of British Columbia are referenced by Gully and it is not clear if any of these decisions were considered by the court.

It is trite law to say that a creditor cannot stand in a better position than its debtor with respect to a particular property. This fundamental common law principle has been confirmed by all level of court in British Columbia for over 100 years. For example the principle was confirmed by the Supreme Court of Canada, in Davidson v. Davidson, 1946 CanLII 12 (SCC) at pages 117-118 as follows:

“…an execution creditor can only sell the property of his debtor subject to all such charges, liens and equities as the same was subject to in the hands of his debtor”: per Strong C.J., Jellett v Wilkie (1) (1896).

The important issue, therefore, is what interest the judgment debtor had at the time the executions were registered in the Land Registry Office…”

There are numerous cases in British Columbia that follow this same reasoning including:

While the Land title Registry in British Columbia is an invaluable tool, British Columbia does not have and has never had an absolute Torrens registration system. The Land Title Act, is a complex statute the requires consideration of numerous sections simultaneously in order to fully understand it. For example s. 26 (1) if the LTA references a rebuttable presumption that a registered charge is valid:

“26   (1) A registered owner of a charge is deemed to be entitled to the estate, interest or claim created or evidenced by the instrument in respect of which the charge is registered, subject to the exceptions, registered charges and endorsements that appear on or are deemed to be incorporated in the register.”

However s. 26 (2) clarifies that mere registration of a charge:

“(2) … does not constitute a determination by the registrar that the instrument in respect of which the charge is registered creates or evidences an estate or interest in the land or that the charge is enforceable.”

The Court of Appeal in Credit Foncier Franco-Canadien v. Bennett, 1963 CarswellBC, 115 BCJ (“Credit Foncier”) (PBA, Tab 7), and succeeding cases has held that the effect of a registered judgment, by reference to the term “shall be deemed” in what is now s. 26 (1) of the LTA, is not absolute but rather creates a “rebuttable presumption” that may be disproved by certain interested parties. Paras 5-6 reads:

5. The plaintiff contends that by virtue of sec. 41 it is to be “deemed entitled” and therefore “irrebuttably presumed:” (1) That the mortgage is a valid charge, owned by the plaintiff, the registered assignee; (2) That there is owing, according to the tenor and intent of the instrument, the named amount of $7,400 and interest.

6. The validity of that contention depends upon the meaning of the words “shall be deemed” appearing in sec. 41. The word “deemed” is capable of meaning “rebuttably presumed,” that is, presumed until the contrary is proved. In Hickey v. Stalker (1923) 53 O.L.R. 414, a Mechanics and Wage-Earners Lien Act, RSO, 1914, ch. 140, amended 1918, ch. 29, provided in effect that the selling value of the land “shall be deemed to be increased by the value of the work or service, “and it was held that the word “deemed” did not mean “conclusively deemed” but rather “taken to be until it is disproved.”…

The rebuttable presumption of indefeasible title is also set out in s. 23 (2) of the Land Title Act (“LTA”) and reads:

An indefeasible title, as long as it remains in force and uncancelled, is conclusive evidence at law and in equity, as against the Crown and all other persons, that the person named in the title as registered owner is indefeasibly entitled to an estate in fee simple to the land described in the indefeasible title, subject to the following…

There are numerous exceptions. The rebuttable presumption of indefeasibility works in favour of “the person named in the title” such as bona fide purchasers for value and likely valid mortgage holders who rely on title in acquiring an interest in property and in advancing mortgage funds on the faith of the registered title.

The Land Title Practice Manual,  Land Title and Survey Authority of British Columbia, published November, 2007, update 2018, summarizes at § 3.28 as follows:

“The Doctrine of Indefeasibility of title as a result of registration is the essence of the Torrens system. A person named as owner on title is “indefeasibly entitled to an estate in fee simple to the land” subject to the exceptions specified in s. 23 (2) of the Act. Section 23 is for the benefit of those who acquire title bona fide for value on the faith of the register.” [Emphasis added]

86(3)(7) of the Court Order Enforcement Act, makes it clear that a mere judgment creditor is not a bona fide purchaser for value. Rather the process for a judgment creditor to realize their order as against real property is set out in the COEA but clearly a judgment creditor does not have the same rights and protections as a bona fide purchaser for value. The COEA sets out the statutory framework for how a judgment creditor may enforce an order against a debtor’s property.

Section 86 (3)(a) of the COEA largely mirrors the fundamental trust law principles set out earlier in the “seminal case” of Jellett  that a judgment creditors’ claim to property cannot exceed that interest held by the debtor. The COEA s. 86(3)(a) reads:

“From the time of its registration the judgment forms a lien and charge on the land…as if charged in writing by the judgment debtor under his or her signature and seal,

(a) to the extent of his or her beneficial interest in the land,”

In Chichak the British Columbia Court of Appeal cited several of these leading cases on the topic and then provided this useful summary at paras 14-22:

[14]      By the registration system, all interests in the property that will affect a prospective purchaser for value are recorded in the register, with the intention that the true state of the title – of all the interests pertaining to the property – will be evident, subject to these few statutory exceptions, and a bona fide purchaser for value will take priority over the holder of an unregistered interest. Section 86(7) of the Court Order Enforcement Act, of course, explicitly provides that a judgment creditor is not a bona fide purchaser for value.

[15]      In my respectful view, the judge misapplied the Land Title Act by effectively equating a judgment creditor, a person who seeks to collect on a judgment in likely unrelated litigation, to the position of a person who has relied on the register in acquiring their indefeasible interest in the land. This would allow a judgment creditor to obtain greater recovery from the land than even the judgment debtor could derive. This result could be legislated, no doubt. However, in my view, it has not; the current legislation does not reach this far. The result, in my view, is contrary to decided authority presented to us but, it appears, not to the judge of first instance.

[16]      I start from the proposition that a judgment creditor, whose claim against the judgment debtor arises independent of a property interest, is in a different position than the holder of other interests in land, particularly an estate in fee simple. In Davidson v. Davidson, 1946 CanLII 12 (SCC), [1946] S.C.R. 115, Justice Estey, in majority reasons, explained at 121:

These statutory provisions … retain the common law rule with respect to rights of judgment creditors. Under that rule the execution creditor can only attach that interest which exists in the execution debtor. The respondent having disposed of his entire interest before the registration of the judgment, this judgment cannot attach the land in question as certified by the Registrar.

[17]      In the context of a judgment creditor of a vendor of land who, at the time the judgment was registered, had agreed to sell the property but the transfer was not yet registered, Madam Justice Newbury for the court in Martin Commercial Fueling Inc. v. Virtanen (1997), 1997 CanLII 3118 (BC CA), 31 B.C.L.R. (3d) 69 (C.A.) said:

[10] … If the register is intended to govern, should not a judgment creditor who takes all reasonably prudent steps to give notice of his charge prevail over persons such as the purchasers in this case, who (through their notary) neglected to check the register but who are deemed to have had notice of the judgment? …

[11]      In approaching this issue, Canadian courts … have focussed instead on the provincial land titles and execution legislation, and on the nature of a judgment as a charge that is distinct from other types of charges — most notably, a mortgage. Except for one period when the statutes dictated the contrary (see Bank of Hamilton v. Hartery (1919), 1919 CanLII 28 (SCC), 45 D.L.R. 638 (S.C.C.), discussed in Gregg v. Palmer, 1932 CanLII 269 (BC CA), [1932] 3 D.L.R. 640 (B.C. C.A.)), courts in these jurisdictions have held consistently that a judgment creditor takes “subject to the equities” arising between a registered owner and a third party.

She concluded:

[15]      These decisions leave little doubt that at least under the Execution Act formerly in force in this province, the claim of a judgment creditor, although registered, was nevertheless subject to the “equities” in favour of an unregistered instrument granted by the owner prior to the obtaining and registration of the judgment.

[18]      Justice Newbury then addressed what is now s. 86 – then s. 79 – of the Court Order Enforcement Act. In the context of the facts before her, she found that what is now s. 86(3)(c) prevailed to give the unregistered purchaser priority to the registered judgment. Martin was discussed and applied In Bank of Montreal v. Fulthorp, 2006 BCCA 166.

[19]      More broadly, this court has held that the principle of nemo dat quod non habet, which is codified in s. 86(3) for registered judgments, continues to operate for interests in land less than an estate in fee simple: see Gill v. Bucholtz, 2009 BCCA 137. On this same reasoning, s. 86(3)(a) must prevail to give a pre-existing resulting trust in the property priority to a registered judgment.

[20]      It is clear from these authorities that although the Court Order Enforcement Act renders the registered judgment a lien or charge on real property, it creates an interest in land that is subject to the equities.

[21]      This approach is compatible with the authorities affirming that the principle of indefeasible title found in the Land Title Act is rebuttable, and that a party claiming a resulting trust in relation to a registered owner is not precluded by the principle of indefeasibility and the sanctity of the register from advancing their equitable interest against that registered owner: Suen at para. 34; Bajwa at paras. 13–14, 23.

[22]      These same principles have been held to apply in execution of judgments (Davidson), in bankruptcy proceedings (Heffner v. Price Waterhouse Ltd. (1986), 1986 CanLII 727 (BC CA), 10 B.C.L.R. (2d) 50 (C.A.)), and to an allegedly fraudulent conveyance (Petrick (Trustee) v. Petrick, 2019 BCSC 1319).

The Court of Appeal then remitted the case back to the Supreme Court of British Columbia for determination with the aid of this clarification.

I noticed that following the 2018 decision in Gully, that some judgment creditors began to enthusiastically apply the reasoning in Gully, as though judgment creditors had the same standing as bona fide purchasers for value. In one case we handled, a third party purchased a half interest in a rental property via his corporate entity but, due to financing issues, the transfer was not registered at the time of purchase. The third party purchaser was a bona fide purchaser for value, it relied on the state of title in making the purchase, and no creditors of the previous owners existed at the time of purchase.

The previous owner then got into financial trouble and his subsequent judgments creditor sought to enforce their judgment as against the registered interest of the former owner, notwithstanding that the former owner had sold his beneficial interest in the rental property years earlier.

In the unreported decision, Mazzei et al. v Preferred Credit Resources Limited, 2019, BCSC, we successfully argued the same principles as set out above (that a judgment creditor’s claim to real property is subject to the judgment debtor’s beneficial interest in the property) in order to preserve our client’s interest in the real property. Mr. J. Dley held at para 13:

“Preferred Credit’s judgment was subject to the Company’s rights because the transfer had occurred in good faith and for valuable consideration before the judgment was registered. The principles set out in Jellett and confirmed by Davidson have been the law in this province for over a century. There are no unique circumstances her that would cause the court to question the binding authority of those decisions. Thus, Preferred Credit cannot secure a greater right to property that that of its judgment debtor. Perry had no title to the property. He had already divested his interest.”

Competing rights and interests in Real Property can be an incredibly complicated area of dispute that often involves multiple parties and may represent significant sums of money or sometimes may be the primary source of an individual’s wealth. For these and other reasons it is important that prompt and thorough legal advice be obtained at the early stages of any real property dispute.