PROVINCE OF PRINCE EDWARD ISLAND IN THE SUPREME COURT - TRIAL DIVISION

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1 Date: Docket: GSC Registry: Charlottetown PROVINCE OF PRINCE EDWARD ISLAND IN THE SUPREME COURT - TRIAL DIVISION IN THE MATTER of an Application by The Royal Bank of Canada for an Order for foreclosure. - AND - IN THE MATTER of Timber Lodge Limited. Before: The Honorable Chief Justice N.H. Carruthers (In Uncontested Chambers) David R. Sanderson Thomas A. Matheson and Jeffrey E. Lantz James T. Revell Ronald J. Keefe Counsel for the Royal Bank of Canada Counsel for the G. Gordon Tweedy, Trustee Counsel for Timber Lodge Limited Counsel for Imperial Life Place and Date of Hearing Place and Date of Judgment Charlottetown, Prince Edward Island March 12, May 1, May 13, May 21, June 11, 1997 Charlottetown, Prince Edward Island July 11, 1997

2 CARRUTHERS C.J.P.E.I.: [1] This is an application for an order for foreclosure over certain lands of Timber Lodge Limited which are subject to security held by the Royal Bank of Canada and to three judgments. The application is made pursuant to Rules 14.05(3), and of the Rules of Civil Procedure and was made in uncontested Chambers. BACKGROUND [2] G. Gordon Tweedy, Trustee (Tweedy), and Timber Lodge Limited (Timber Lodge) own adjoining parcels of land in West Royalty (in Charlottetown), Queens County, Province of Prince Edward Island. The two parties entered into a verbal agreement to subdivide their adjoining properties. Designer Surveys Inc. prepared a subdivision plan of the properties dated May, 1987, drawing number D It was discovered in June 1994, that the boundary line between the two parcels of land followed on the subdivision plan does not precisely follow the actual boundary line of the two properties. As a result, lot numbers 72, 77, 80, 91 and 100 as shown on the subdivision plan are supposed to be completely owned by Tweedy but, in fact, these lots are comprised of lands owned by both Tweedy and Timber Lodge. Other lots which are supposed to be completely owned by Timber Lodge are, in fact, comprised of lands owned by both Timber Lodge and Tweedy. [3] There is also a proposed street shown on the subdivision plan which is comprised of lands owned by each party. [4] The Timber Lodge lands are mortgaged to the Royal Bank as follows: 1. A Demand Debenture dated May 13, 1987, principal sum $500,000.00, registered in the Office of the Registrar of Deeds for Queens County, in Charlottetown, Prince Edward Island on the 13th day of August, 1987, in Liber 527, Folio A Demand Debenture dated January 26, 1988, principal sum $1,000,000.00, registered in the Office of the Registrar of Deeds for Queens County in Charlottetown, Prince Edward Island, on January 27, 1988, in Liber 545, Folio A Collateral Mortgage dated March 5, 1992, principal sum $900, registered in the Office of the Registrar of Deeds for Queens County in Charlottetown, Prince Edward Island, on March 12, 1992, in Liber 725, Folio 49, and re-registered on May 15, 1992, in Liber 733, Folio 7.

3 Page: 2 [5] The Timber Lodge Lands are also subject to the following three judgments: 1. Judgment dated February 1, 1993, in favor of Her Majesty the Queen in right of the Province of Prince Edward Island for revenue sales tax in the amount of $27, Judgment dated April 7, 1993, in favor of Imperial Life Assurance Company of Canada (Imperial Life) for an Order of costs in favor of Imperial Life in the amount of $29, Judgment dated September 29, 1994, pursuant to the Excise Tax Act in the amount of $19, (G.S.T.). [6] The parties are desirous of getting the problems straightened out as Tweedy has sale for some of his lots in question. Apparently negotiations to resolve the issues failed, and the Royal Bank now seeks to foreclose on these portions of Timber Lodge lands that are contained in Lot numbers 72, 77, 80, 91 and 100. [7] Frank Johnston, President and principal shareholder of Timber Lodge, admits the mortgages are in default and that the Royal Bank has the right to foreclose on the lands in question. He admits he received adequate notice from the Royal Bank of its intention to foreclose on the lands in question for the sole purpose of being able to provide Tweedy with clear title to the lots which were intended to be solely owned by Tweedy. The Royal Bank also seeks to foreclose on that portion of the proposed street which is owned by Timber Lodge so title can be transferred to the Government of Prince Edward Island. It is my understanding that because of the small amount of land involved there is no money being transferred as the foreclosure proceeding is to accommodate Tweedy so he can proceed with the development of his own subdivision. ISSUES [8] The application is made under Rules 14.05(3)(e) and (h) and Rule of the Civil Procedure Rules. Rule 14.05(3)(e) and (h) state as follows: 14.05(3) A proceeding may be brought by application where these rules authorize the commencement of a proceeding by application or where the relief claimed is for,... (e) the declaration of an interest in or charge on land, including the nature

4 Page: 3 and extent of the interest or charge or the boundaries of the land, or the settling of the priority of interest or charges;..... (h) in respect of any matter where it is unlikely that there will be any material facts in dispute. [9] Rule 64.03(1) and (2) state: 64.03(1) In an action for foreclosure, all persons interested in the equity of redemption shall be named as defendants in the statement of claim, subject to subrule (2). (2) The plaintiff may commence a foreclosure action without naming subsequent encumbrances as defendants where it appears expedient to do so by reason of their number or otherwise, but the plaintiff may make a motion without notice on a reference after judgment to add as defendants all subsequent encumbrances who were not originally made parties. [10] I am satisfied that under the circumstances of this case, it was appropriate to commence the proceeding by application but I ordered that notice of the proceeding had to be given to the Judgment Creditors. They were served with notice and counsel appeared on behalf of Imperial Life but no one appeared for the other two Judgment Creditors. [11] Counsel for Imperial Life asked for time to review the file and to consult with his client in order to determine the position they would take on the application. I granted an adjournment and the hearing resumed on May 21, 1997, but Imperial Life had not been able in the meantime to schedule a meeting with the Royal Bank. It objected to the granting of any order until they had an opportunity to canvass all the issues related to the application. [12] I, therefore, granted another adjournment until June 11, 1997, and urged the parties to get together in a real effort to resolve any problems. [13] Some consultations did occur during the adjournment but a solution was not achieved.

5 Page: 4 [14] Counsel for Imperial Life advised the court his client does not object to the application as long as the court has jurisdiction to grant the relief requested. He does, however, have two concerns. He submits that information given to the court about a request having been made to Imperial Life for releases may not be accurate, and he submits the judgment lienholders are not being protected if the land in question is transferred without consideration. [15] Paragraph 4 of the affidavit of Frank Young, Manager with the Royal Bank of Canada, states: 4. That Timber Lodge Limited has not been able to obtain releases from all of its creditors so that conveyances by Timber Lodge Limited can occur. Accordingly, in order to protect its security, the Royal Bank of Canada has called its loan with Timber Lodge Limited and its foreclosing on the lands shown in Schedule A hereto. Schedule AA@ refers to legal description for various parcels of land which include the lands in question. [16] Paragraph 4 of Frank Johnston s affidavit states as follows: 4. That I have outlined here in yellow in the diagram attached as Schedule A the lands which are being foreclosed upon by the Royal Bank of Canada. Timber Lodge Limited has repeatedly requested that the judgment lienholders release their interest in these lands but judgment creditors have declined to release their interest and as a result the lots involved have not been able to be conveyed with free title and the completion of the public roadway undertaken. [17] Counsel for Imperial Life made suggestions that the contents of paragraph 4 of Frank Johnston s affidavit may not be factually correct. He did not, however, file any documents with the court attesting to such submissions. In fact, Imperial Life did not file anything with the court concerning the application. I can only rely on the evidence before the Court. As there is no contradictory evidence before me on this point, I accept the evidence contained in the affidavits of Mr. Young and Mr. Johnston. [18] I do not believe the judgment lienholders are being prejudiced in any way if I grant the relief requested as there is no transfer of money involved. The lands in question are not of any real value to Timber Lodge as they only constitute a very small portion of each of the Tweedy lots. If any money was involved, it would be paid to the Royal Bank and not to the Judgment lienholders in any event.

6 Page: 5 [19] I, therefore, do not believe there is any substance to these two concerns of counsel for Imperial Life. JURISDICTION [20] Counsel for Imperial Life question the jurisdiction of the Court to note Timber Lodge in default and to grant an order for foreclosure. [21] Counsel for the Royal Bank submits that the Court does have the necessary jurisdiction. He submits that because of the unusual fact situation in this case, it is in the interest of justice that the relief requested be granted so the problem can be resolved and Tweedy allowed to continue with the development of his subdivision. [22] I am satisfied the application is properly before the court and that I have jurisdiction to grant the relief requested. [23] At common law, upon default, the mortgagee may bring an action for foreclosure. Section 72 of the Real Property Act, R.S.P.E.I. 1988, Cap. R-3, gives the Court jurisdiction on a foreclosure action to sell such part of the mortgaged premises as may be sufficient to discharge the amount due on the mortgage and costs of suit and sale. Rule of the Rules of Civil Procedure deals with foreclosure actions. Rule 64.03(9)(b) states: 64.03(9) Where a defendant in a foreclosure action has been noted in default and has not filed a request to redeem, the plaintiff..... (b) if he or she does not wish a reference concerning subsequent encumbrancers, may require the registrar to sign judgment for immediate foreclosure. [24] I am satisfied that I do have the necessary jurisdiction to deal with this application and grant the relief requested. [25] I, therefore, note Timber Lodge Limited to be in default with respect to the mortgage security it granted to the Royal Bank of Canada. There has not been any request to redeem filed and the Royal Bank does not wish a reference concerning subsequent encumbrances.

7 Page: 6 [26] I, therefore, grant a final order of foreclosure against Timber Lodge Limited with respect to those portions of Timber Lodge lands contained in Lot numbers 72, 77, 80, 91 and 100 and the proposed street, all as shown on the subdivision plan prepared by Designer Surveys Inc. dated May 1987, and being Drawing Number D The Honorable Chief Justice N.H. Carruthers