Household Realty Corporation Ltd. et al. v. Attorney General of Canada, [1980] 1 SCR 423

Supreme Court of Canada

Household Realty Corporation Ltd. et al. v. Attorney General of Canada, [1980] 1 S.C.R. 423

Date: 1979-10-02

Household Realty Corporation Limited and Harris and Roome Limited Appellants;

and

Attorney General of Canada Respondent;

and

MacCulloch & Company Limited, T.P. Calkin Limited and the Royal Bank of Canada Appellants;

and

Attorney General of Canada Respondent.

1979: March 7; 1979: October 2.

Present: Martland, Ritchie, Pigeon, Beetz, Estey, Pratte and McIntyre JJ.

ON APPEAL FROM THE SUPREME COURT OF NOVA SCOTIA, APPEAL DIVISION

Mortgages—Priorities—Sale of land—Priority of Crown judgments—Priority of Crown claims with claims “of equal degree”—The Registry Act, R.S.N.S. 1967, c. 265, ss. 17, 18.

Both appeals involve the same issue—does a Crown judgment have priority in the distribution of a foreclosure sale surplus over judgments and second or collateral mortgages registered under the Registry Act prior to the Crown judgment? In the MacCulloch case, Grant J., in chambers held that the Crown had priority over a collateral mortgage held by the appellant Royal Bank and over judgments of the other appellants, all of which were recorded prior to the Crown’s judgment. In the Household Realty case, Hart J., also in chambers, held that the Crown had no such priority and that it ranked after collateral or second mortgages recorded prior to the recording of the Crown’s judgment. In his reasons on the application for leave to appeal to this Court, MacKeigan C.J. narrowed the issue to—whether a federal Crown judgment has priority in the distribution of the first mortgage foreclosure sale surplus over a second or collateral mortgage registered under the provincial Registry Act prior to the Crown judgment. The Appeal Division held that the Crown’s judgments did take priority basing their conclusion on The Queen v. Bank of

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Nova Scotia (1885), 11 S.C.R. 1.

Held: The appeals should be allowed.

Where a debt or claim due to the Crown comes into competition with the debt or claim of a subject and the claims are “of equal degree”, the claim of the Crown prevails. The issue here however was whether the claims “were of equal degree”. The surplus monies in the hands of the sheriff were held by him and later by the Accountant General of the Supreme Court of Nova Scotia in trust for the subsequent encumbrancers. It cannot be said that, upon the security represented by the mortgage premises being converted into money at the foreclosure sale, the priority of a second mortgagee of record is automatically diminished in favour of a Crown judgment recorded at a later date. This being so, the claim of the second mortgagee is of a higher degree than that of the subsequently recorded Crown judgments and the “equal degree” rule does not apply. The Crown judgments on registration have under the priorities of ss. 17 and 18 of the Act, the status of mortgages and depend for their priority upon the date of registration.

The Queen v. Bank of Nova Scotia (1885), 11 S.C.R. 1; Crowther v. Attorney-General of Canada (1959), 42 M.P.R. 269; Re Henley & Co. (1878), 9 Ch. D. 469; The Queen v. J.A. Hughes Construction Limited (1977), 77 D.L.R. (3d) 92; Re Downe (1972), 3 Nfld. & P.E.I.R. 496 referred to.

APPEALS from a judgment of the Supreme Court of Nova Scotia, Appeal Division[1] in the matter of judgments of Grant J. and Hart J. in chambers. Appeals allowed, judgment of Hart J. restored, order that surplus funds remaining after paying the amounts due to MacCulloch & Company Limited and T.P. Calkin Limited be paid to the Royal Bank of Canada substituted for judgment of Grant J.

The judgment of the Court was delivered by

RITCHIE J.—This is an appeal from a judgment of the Appeal Division of the Supreme Court of

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Nova Scotia brought with leave of that Court pursuant to s. 38 of the Supreme Court Act. Two appeals were involved in the judgment of the Appeal Division and the situation is explained in the opening paragraphs of the reasons for judgment delivered by Chief Justice MacKeigan in disposing of the appeal where he said:

These appeals involve the same issue—does a Crown judgment have priority in the distribution of a foreclosure sale surplus over judgments and second or collateral mortgages which were registered under the Registry Act prior to the Crown judgment?

In the first case, MacCulloch & Company Limited et al. v. Attorney General of Canada, the Honourable Mr. Justice Grant in chambers held that the Crown had priority over a collateral mortgage held by the appellant Royal Bank and over judgments of the other appellants, all of which were recorded prior to the Crown’s judgment. In the second case, Attorney General of Canada v. Household Realty Corporation Limited et al., the Honourable Mr. Justice Hart in chambers held that the Crown had no priority and that it ranked after the respondents who had collateral or second mortgages recorded prior to the recording of the Crown’s judgment.

In the course of the reasons for judgment which he delivered on the application for leave to appeal to this Court, Chief Justice MacKeigan narrowed the issue which he stated in the following terms: At issue is whether a federal Crown judgment has priority in the distribution of the first mortgage foreclosure sale surplus over a second or collateral mortgage registered under the provincial Registry Act prior to the Crown judgment. No constitutional question was seriously argued on this appeal and indeed none was raised in accordance with the provisions of Rule 17 of the Rules of this Court.

The Appeal Division, like Mr. Justice Grant, held that the Crown’s judgments took priority over the second mortgages and other judgments which were recorded before them. This finding is based on a judgment of this Court in The Queen v. Bank

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of Nova Scotia[2] where the Chief Justice stated:

I do not think there can be a doubt that the Crown is entitled at common law to a preference in a case such as this, for when the rights of the Crown come in conflict with the right of a subject in respect to the payment of debts of equal degree, the right of the Crown must prevail, and the Queen’s prerogative in this respect, in this Dominion of Canada, is as exclusive as it is in England, the Queen’s rights and prerogatives extending to the colonies in like manner as they do to the mother country.

It is noted in the reasons for judgment of the Appeal Division that the same view is echoed in other cases and both the Chief Justice and Mr. Justice Grant relied heavily on the case of Crowther v. Attorney-General of Canada[3]. This case related to competing claims advanced by the Crown and by an individual under s. 26(1) of the Automobile Insurance Act, R.S.N.S. 1954, c. 18, whereby the plaintiff was accorded the right

“…to have the insurance money payable under the policy applied in or towards satisfaction of his judgment and of any other judgments or claims against the insured covered by the indemnity and may, on behalf of himself and all persons having such judgments or claims, maintain an action against the insurer to have the insurance money so applied.”

The claims in this case were clearly “of equal degree” and Mr. Justice MacDonald, speaking for himself and Mr. Justice Parker made the following statement:

…Hence I think it is desirable to point out that the prerogative claimed by the Crown Dominion is that described in the Attorney-General’s factum herein as ‘the prerogative which provides that, whenever the right of the Crown and the right of the subject with respect to the payment of debts or claims of equal degree come into competition, the right of the Crown prevails …to the exclusion or postponement of other claimants of equal degree.’

I am satisfied that where a debt or claim due to the Crown comes into competition with the debt or claim of a subject and the claims are “of equal

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degree”, the claim of the Crown prevails, but the pivotal question to be determined in this appeal is whether the claims represented by the recorded judgments of the Crown can be said to be “of equal degree” with the “second or collateral mortgage” previously recorded to which Chief Justice MacKeigan refers in the order granting leave to appeal to this Court.

With the greatest respect, I am unable to find any assistance in the reasons for judgment of the Appeal Division as to the meaning to be given to the phrase “of equal degree”. After referring to the case of Re Henley & Co.[4] at p. 481, Chief Justice MacKeigan goes on to say:

I can find no definition of the phrase. In Re Henley & Co. mortgage claims were also apparently involved. I conceive the phrase to refer to what we would now call classes of creditors, such as secured creditor, ordinary creditor, etc.

The surplus monies in the hands of the sheriff after the first mortgage foreclosure sale were in my opinion held by him and subsequently by the Accountant General of the Supreme Court of Nova Scotia in trust for the subsequent encumbrancers, and in my view it cannot be said that upon the security represented by the mortgage premises being converted into money at the foreclosure sale, the priority theretofore enjoyed by a second mortgagee of record is automatically diminished so as to accord precedence to a Crown judgment obtained and recorded at a later date. If this be so, then it must follow that the claim of the second mortgagee is of a higher degree than that of the subsequently recorded Crown judgments and as the royal prerogative can only be invoked where the claim of the Crown and the subject are “of equal degree”, it can have no application in the present circumstances.

Like Hart J., I am of opinion that the degree of the priority of entitlement to the foreclosure sale surplus is to be determined according to the provisions of the Registry Act of Nova Scotia and the

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Civil Procedure rule of that Province which establishes that:

47.11. Where the purchase money on a sale exceeds what is found to be due to a plaintiff, all accounts may be taken, inquiries made, costs taxed, and necessary proceedings had to distribute the surplus among the persons entitled thereto according to their priorities.

As I have indicated, I agree with Mr. Justice Hart that the words “entitled thereto according to their priorities” as they occur in this rule have reference to the priorities established under the Registry Act, R.S.N.S. 1967, c. 265, the most relevant sections of which for the purpose of this appeal are ss. 17 and 18 which read as follows:

17. Every instrument shall, as against any person claiming for valuable consideration and without notice under any subsequent instrument affecting the title to the same land, be ineffective unless the instrument is registered in the manner provided by this Act before the registering of such subsequent instrument.

18. A judgment, a certificate of which is registered in the manner by this Act provided in the registry of any district, shall, from the date of such registry, bind and be a charge upon any land within the district of any person against whom the judgment was recovered, whether such land was acquired before or after the registering of such certificate, as effectually and to the same extent as a registered mortgage upon such land of the same amount as the amount of such judgment.

It will be seen from the above that although registration of the Crown judgments gives them the status of mortgages, they depend for their priority upon the date of registration.

In the course of the reasons for judgment which he delivered on behalf of the Appeal Division, Chief Justice MacKeigan referred to the comment made by McQuaid J.A., in The Queen v. J.A. Hughes Construction Limited[5] at p. 95, where he said of the case of Re Downe[6]:

…If necessary, however, the case at bar is distinguishable inasmuch as in the Downe case the Crown was seeking priority of its judgment over a prior registered

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chattel mortgage and it could be argued that the competition was not between creditors ‘of equal degree’.

The Hughes case in my view stands for nothing more than a restatement of the proposition that even apart from the statute the Crown would have priority over judgment creditors as creditors of equal degree.

With the greatest respect I am unable to agree with the learned Chief Justice in the passage of his judgment which immediately succeeds his reference to the Downe case and where he said:

Here the creditors are in that sense all of the same class or degree vis-à-vis the fund in court. They are not of ‘unequal’ degree merely because they have different priorities. In any event, they do not cease to be of ‘equal degree’ merely because of the Registry Act priorities. A provincial statute cannot thus indirectly wipe out a federal Crown prerogative right.

In my view this passage overlooks the position at common law which was that the second mortgages here in question representing as they do a part interest in the legal title, took precedence over Crown judgments subsequently obtained and recorded against the mortgagor, owner of the equity of redemption. As I am of opinion that the monies in the hands of the sheriff and subsequently the Accountant General of the Supreme Court of Nova Scotia were subject to the same priorities as those existing at common law before the sale, it follows that I find the mortgagee’s claim to be of higher and not of equal degree with that of the Crown, so that in the present case there was no federal Crown prerogative right wiped out by the Registry Act or otherwise.

For all these reasons I would allow this appeal, set aside the judgment of the Appeal Division, restore the judgment rendered by Mr. Justice Hart and substitute for the judgment of Grant J. an order that the surplus funds remaining after paying the amounts due to MacCulloch & Company Limited and T.P. Calkin Limited be paid to the Royal Bank of Canada.

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The appellants are entitled to their costs throughout.

Appeals allowed, judgments accordingly, with costs.

Solicitors for Household Realty Corporation Limited, appellant: McInnes, Cooper & Robertson, Halifax.

Solicitors for the Royal Bank of Canada, appellant: Stewart, MacKeen & Covert, Halifax.

Solicitor for the Attorney General of Canada, respondent: M. Gerard Tompkins, Halifax.