Eichhorst v. Euro-Canadian Mortgage Corp.

2014 BCSC 164 Eichhorst v. Euro-Canadian Mortgage Corp.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Eichhorst v. Euro-Canadian Mortgage Corp., 2014 BCSC 164 Date: 20140131 Docket: 92883 Registry: Kelowna Between: Michael Eichhorst Appellant And: Euro-Canadian Mortgage Corp. Respondent Before: The Honourable Madam Justice Watchuk On appeal from the Supreme Court of British Columbia, dated July 15, 2013 (Euro-Canadian Mortgage Corp. v. Eichhorst, Kelowna Registry No. H92883) Reasons for Judgment In Chambers Counsel for the Appellant: Roy Sommerely Counsel for the Respondent: Wayne Neufeld Place and Date of Hearing: Kelowna, B.C. August 29, 2013 Place and Date of Judgment: Vancouver, B.C. January 31, 2014 I. Introduction [1] The appellant, Michael Eichhorst, appeals from an order of a Master which held that he had not shown cause why his interest in certain lands should not be sold pursuant to pursuant to s. 92 of the Court Order Enforcement Act, R.S.B.C. 1996, c. 78 (the "COEA"). The Master also ordered a reference to the district registrar (the "Registrar") in order to determine certain facts pursuant to the second stage of the three-stage process set out in sections 92, 94 and 96 of the COEA. [2] The appellant seeks an order that the appeal be allowed, and a declaration that he has shown cause as to why his interest in the four parcels of land, which are collectively referred to as "the lands", should not be sold to realize

the amount payable under a judgment registered on the lands by the respondent, Euro-Canadian Mortgage Corp. [3] If the appellant is successful, the process under the COEA would not proceed. The respondent submits that the COEA process should continue to the third stage so that the substantive issue regarding if and how a liquidation may take place may be determined. II. Background [4] This matter is one of two proceedings relating to the sale of the lands or an interest in the lands through separate court processes: (a) On May 9, 2012 Road Kill Investments Inc. ("Road Kill") commenced proceedings to enforce two mortgages registered against the lands against all owners, namely, Michael, Seigfried, and Angela Eichhorst, (the "foreclosure proceeding"); and (b) On July 15, 2013 Euro-Canadian Mortgage Corp. commenced this proceeding under the COEA to enforce a consent judgment against Michael Eichhorst only (the "COEA proceeding"). III. Facts [5] The parties do not disagree on the facts set out below. A. The Lands [6] The lands are 960 acres of potential future development land along the eastern slope of the Okanagan Valley above the Ellison/Kelowna Airport region of Kelowna. The combined list price of the lands is $13,300,000 [7] Michael Eichhorst, the appellant, his brother Seigfried Eichhorst, and his sister Angela Eichhorst, each own a 1/5 interest in the lands with PID:

001-714-350, 001-713-728, and 001-713-779, and a 1/4 interest in the lands with PID: 001-713-884. [8] On August 28, 2008 Road Kill registered two mortgages against the lands. They were filed in the Kamloops Land Title Office on September 2, 2008 under charge CA904567 (collectively the "Road Kill Mortgage"). [9] The court is advised that Road Kill is aware of the COEA proceeding and is not contesting the respondent's application. It did not appear or make submissions on this hearing. [10] Other parties with charges registered against the lands include a judgment of Farris Vaughan, Wills & Murphy LLP ("Farris") against Michael Eichhorst only. They did not attend and took no position. B. The Foreclosure Proceeding History [11] On May 9, 2012 Road Kill brought two foreclosure actions against the lands in Kelowna Court Registry actions 93316 and 95362. The particulars are as follows: PID Legal Foreclosure Action PID: 001-713-884 Parcel 16 (Plan A237) of the South West ¼ of Section 20, Township 27, Osoyoos Division Yale District SCBC No. 93316 Kelowna Registry Road Kill Investments Inc. v. The Estate of Arnold Eichhorst and Others ("Action 93316") Firstly: PID: 001-714-350 The East ½ of Section 20, of Township 27, Osoyoos Division Yale District SCBC No. 95362 Kelowna Registry Road Kill Investments Inc. v. The Estate of Arnold Eichhorst and Others ("Action 95362") Secondly: PID:

001-713-728 The West ½ of Section 20, of Township 27, Osoyoos Division Yale District, except that part shown as Parcel 16 on Plan A237 Thirdly: PID: 001-713-779 The West ½ of Section 29, Township 27, Osoyoos Division Yale District [12] On May 9, 2012 Road Kill obtained an Order Nisi of Foreclosure and Order for Conduct of Sale in Action 93316, and on August 15, 2012 obtained a Consent Order Nisi and Order for Conduct of Sale in Action 95362. Those orders granted Road Kill the exclusive right to list and market the lands for sale, and the lands are being marketed in accordance with those orders (collectively the "Conduct of Sale Order"). [13] As of May 9, 2012, $5,838,097.82 plus interest at $1,054.79 per day was owed under the Road Kill Mortgage. C. COEA Proceeding [14] Michael Eichhorst mortgaged his personal residence at 408 Woodpark Court, Kelowna, British Columbia to Euro-Canadian (the "Euro-Canadian Mortgage"). Michael Eichhorst defaulted on the Euro-Canadian Mortgage, and Euro-Canadian commenced foreclosure proceedings. [15] In an effort to avoid unnecessary costs associated with the Euro-Canadian foreclosure proceedings, Michael Eichhorst consented to a judgment of $135,188.58 dated June 8, 2012 (the "Consent Order'). On or about June 22, 2012, the Consent Order was registered on title to the lands. [16] On July 15, 2013, Euro-Canadian commenced the COEA proceeding to

execute on its judgment by seeking to sell Michael Eichhorst's partial interest in the lands. Master Young granted the order which is the subject of this appeal in allowing Euro-Canadian to proceed under this process (the "Order"). [17] Michael Eichhorst appeals the Order. IV. Issues [18] The main issue raised by the appellant is whether it is appropriate for the Court to allow contemporaneous proceedings under the COEA to realize against a partial interest in lands which are, in their entirety, the subject of pre-existing foreclosure proceedings with the Conduct of Sale Order in effect. [19] The respondent frames the issue as whether the fact that there are foreclosure proceedings taking place over property which is a larger parcel with additional owners satisfies the reverse onus on the appellant at the first stage of the COEA proceeding to show cause why his interest should not be sold. It submits that the third stage of the process is the appropriate time for the court to determine if or how the appellant's interest should be sold after the court has the benefit of the Registrar's report pursuant to the second stage as set out in s. 94 of the COEA. V. Standard of Review [20] As this is an appeal from an order of a Master, I must first determine the standard of review and its application in this case. [21] The parties agree that the test is set out in the case of Stoneman v.

Desjardins, 2004 BCSC 57 at para. 7: [7] The parties agree that, subject to two exceptions, the appropriate standard of review in an appeal from a Master's order is whether the order can be said to be "clearly wrong" (Abermin Corporation v. Ganges Exploration Ltd. (1990), 45 B.C.L.R. (2d) 188 (B.C.S.C.)). The two exceptions deal with orders that can be characterized as being vital to a final issue in the case and orders decided on a point of law. In these two circumstances, the review is by way of a rehearing, unfettered by any deference to the order under appeal (Northland Properties Ltd. v. Equitable Trust Co. (1992), 71 B.C.L.R. (2d) 124 (B.C.S.C.)). [22] The appellant submits that the Order is an error of law, or in the alternative is vital to a final issue in this case. The error of law alleged is that the COEA proceeding constitutes a parallel proceeding in relation to the matters in question contrary to section 10 of the Law and Equity Act, R.S.B.C. 1996, c. 253. [23] As a result, he submits that in these circumstances a rehearing of the COEA proceeding is appropriate. [24] The respondent submits that there is no error of law and that this order cannot be characterised as being vital to a final issue. Thus it says that there should be no rehearing. [25] The transcript of the proceedings before the Master as provided to this court is the brief Oral Reasons for Judgment.

It states: [1] THE COURT: At this stage, I can see no reason to deny the application. [2] At the stage, which will be stage 3 under the Court Order Enforcement Act, when the court is actually considering a sale, I can see that there is going to be an issue of duplication of proceedings. However, I do not see any grounds at this stage to deny the order and allow the process to continue to the next stage, which is a reference to the registrar. [3] So, I am going to grant the order as sought in the notice of application. [26] With regard to the issue of whether there is a question of law, the Master's statement, that there would be an issue of duplication of proceedings at the third stage of the COEA proceedings when the court considers a sale, was made on a point of law. The decision was made implicitly that there was no duplication of proceedings at the first or second stage and therefore no cause shown. In finding that no grounds were found to deny the order, the reverse onus on the appellant to show cause why his interest in the land should not be sold was properly applied. [27] In addition, I find that the making of order at the first stage of the COEA proceedings that cause has not been shown and for a reference to the Registrar is an order vital to the final issue in the case which is whether the appellant's interest in land is liable to be sold. [28] I will therefore

proceed to a rehearing of the matter on the merits. VI. Discussion [29] The issue to be determined is whether the appellant has shown cause why his interest in the lands should not be sold to realize the amount payable under the judgment. The relevant portion of s. 92 of the COEA states: Procedure for enforcing charge 92 (1) If a judgment creditor has registered a judgment under this Act, and alleges that the judgment debtor is entitled to or has an interest in any land, or that any land is held subject to the lien created by registration of judgment under section 82, a motion may be made in Supreme Court Chambers, by the judgment creditor calling on the judgment debtor, and on any trustee or other person having the legal estate in the land in question, to show cause why any land in the land title district in which the judgment is registered, or the interest in it of the judgment debtor, or a competent part of the land, should not be sold to realize the amount payable under the judgment. [30] Counsel advised that the only case where the court had found that cause had been shown why lands should not be sold to realize the amount payable under the judgment is Cronkhite Supply Ltd. v. Adams, [1983] B.C.J. No.

1696. In the unusual facts of that case, both counsel invited the court to avoid an unnecessary reference to the Registrar where the proceeds of sale of a home in a matrimonial action would be subsumed in the COEA process. The court found that this was not an option, as the procedure was mandatory, but found that the respondent had shown cause why his interest in the land should not be sold. The court therefore ordered that the respondent make monthly payments, as would likely have been ordered under the COEA, pursuant to s. 42 of the Supreme Court Act. A. Multiplicity of Proceeding [31] The appellant submits that the multiplicity of proceedings which will follow if the matter proceeds to the Registrar's hearing and the third stage is sufficient to show cause why the application under the COEA should not be granted. [32] The Law and Equity Act, s. 10, requires the court to avoid multiplicity of proceedings: Avoidance of multiplicity of proceedings 10 In the exercise of its jurisdiction in a cause or matter before it, the court must grant, either absolutely or on reasonable conditions that to it seem just, all remedies that any of the parties may appear to be entitled to in respect of any legal or equitable claim properly brought forward by them in the cause or matter so that, as far as possible, all matters in controversy between the parties may be completely and finally

determined and all multiplicity of legal proceedings concerning any of those matters may be avoided. [33] The appellant submits that in order for him to ensure his best interests are advanced in two proceedings related to the sale of the lands, he will be forced to incur additional and unnecessary expenses. This is because he is also dealing with matters involved in the foreclosure proceeding in which the lands, including his interest in the lands, are being marketed under the Conduct of Sale Order. [34] The respondent submits that the proceedings are not a duplication because the COEA may offer something different to the judgment creditor than the foreclosure proceeding. For example, the respondent may seek to acquire the appellant's interest in the lands. They would then exchange their judgement security in the property for an investment interest in the lands being sold in the foreclosure proceedings. However, the respondent is not in a position to bid on the lands as a whole in the foreclosure proceedings. [35] With regard to the application of s. 10 of the Law and Equity Act, the question which must be determined is whether the "matters in controversy between the parties" in the foreclosure proceeding are the same as those in controversy in the COEA proceeding. In this case the parties in the two foreclosure actions comprising the foreclosure proceeding are different from

the parties in the COEA proceeding. More importantly, the matters in controversy are not the same: the lands which are subject to the Conduct of Sale Order are different from the appellant's interest in the lands. [36] There is no multiplicity of proceedings in these circumstances. I do not find that s. 10 of the Law and Equity Act assists the appellant in showing cause why this matter should not proceed to the next stage of the COEA proceedings. B. Appropriate Method of Proceeding [37] The appellant also relies on s. 15 of the Law and Equity Act which addresses the situation where a property is under foreclosure proceedings, and a judgment debtor wishes to register his or her judgment against the properties under foreclosure. Order for sale 15 The court may, before or after judgment in a proceeding (a) by a mortgagee, for the foreclosure of the equity of redemption in mortgaged property, or (b) by a vendor of land, where a claim for the cancellation of the agreement is made, with or without a claim for the forfeiture of money paid on account of the purchase price, on the application of a person who has an interest in the property or land, direct a sale of the property or land on the terms the court considers just. [38] The purpose of this section, previously s. 16 of the Law and Equity Act, was discussed in Columbia Trust v. Larsen (1986), 6 B.C.L.R. (2d) 369 at 374: I have never seen any exposition of the reasons for s.

16. I speculate there were two reasons: (a) To enable the court to assist junior encumbrancers and mortgagors who were unable to redeem to salvage something when the first mortgagee or any other encumbrancer senior on the title was foreclosing. (b) To enable a mortgagee who did not have a power of sale in his instrument to obtain a sale. Powers of sale did not come into use until the early nineteenth century. They soon became popular. But there may well have been, even by 1852, many mortgages of longstanding without them: see Clarke v. The Royal Panopticon (1857), 4 Drew. 26 [39] The appellant submits that this is the appropriate procedure for the respondent to collect on the Consent Order and it should apply under s. 15 and become a party to the foreclosure proceeding. Alternatively, it could seek to vary or set aside the Conduct of Sale Order in the foreclosure proceeding. [40] As there is a realistic alternative means by which the respondent judgment creditor may collect on the Consent Order through s. 15, which would be a more efficient and effective use of judicial resources, it is submitted by the appellant that the COEA proceeding is clearly inappropriate. [41] The respondent acknowledges that it is open to it to attempt to wrest conduct of sale away from the first mortgagee, Road Kill. That would, however, require an expensive appraisal of the lands and further court

applications which may be contested by Road Kill, who in these proceedings did not appear and takes no position. [42] With regard to the values attributed to the lands, as set out below, if the listing price for the lands of $13,300,000 is realised in a sale, the appellant's gross interest in the lands, prior to payment of the charges including the Road Kill mortgages totalling $5,838,098 plus interest, may be calculated as follows: PID# Fraction of Michael Eichhorst Marketed Value of Property Michael Eichhorst's Interest PID: 001-713-884 & PID: 001-713-728 A 1/5 and 1/4 interest collectively, calculated assuming a 1/4 interest $3,500,000.00 $875,000.00 PID: 001-713-779 1/5 interest $3,500,000.00 $700,000.00 PID: 001-714-350 1/5 interest $6,300,000.00 $1,260,000.00 TOTAL: $13,300,000.00 $2,535,000.00 This is in contrast to the amount of the respondent's judgment against the appellant which is $135,189. [43] Although it is acknowledged that the process for obtaining an order for sale as set out in s. 15 of the Law and Equity Act is open to the respondent, that provision does not preclude the operation of the COEA procedure for obtaining an order for sale. That the respondent chose to proceed in these circumstances by the COEA, which it sees as an economical process given the amounts in issue, does not assist the appellant in showing cause why his interest in the lands should not

be sold. C. The Sale of a Partial Interest in the Lands [44] Finally, the appellant submits that in order to effect a sale of the appellant's interest in the lands pursuant to the COEA, a partition of the appellant's interest would be necessary. A partition would adversely affect the other parties in the foreclosure proceedings. [45] The respondent submits that partition is not necessary in order to effect a sale of the appellant's interest. It does not intend to interfere with the foreclosure process but rather, recognising the commercial realities, seeks to become an investor in the lands. [46] Whether the appellant's interest should be sold and the manner of a sale are matters to be determined at the third stage of the COEA proceeding when the court has the benefit of the report of the Registrar who will have conducted a complete enquiry into the relevant facts. [47] I do not find that this submission assists the appellant in showing cause why his interest in the lands should not be sold. VII. CONCLUSION [48] For the reasons set out above, the judgment debtor, Mr. Eichhorst, has not shown cause why his interest in the lands should not be sold to realise the amount payable to the respondent, the judgment creditor. Accordingly I confirm the order of the Master and direct that there be a reference to the Registrar pursuant to s. 94 of the COEA. [49] The reference to the Registrar will be in the terms of the draft order made by the Master on July 15, 2013, with a report to be made to the Court. [50] The respondent is entitled to its costs of this appeal. "The Honourable Madam Justice Watchuk"