Update: The Supreme Court refused leave to appeal from the Court of Appeal’s judgment.
The Court of Appeal’s decision in Zabanah v. Capital Direct Lending brings certainty to the application of the Real Property Limitations Act (and its plaintiff-friendly limitation periods). There mere fact that a claim affects real property will not exclude the application of the Limitations Act, 2002.
The appellant purchased a second mortgage on a home from the respondent, Capital Direct. The mortgagor had fraudulently informed Capital Direct that the balance of the first mortgage on her home was $83,000 when it exceeded $200,000. The mortgagor made an assignment in bankruptcy. The first mortgagee advised the appellant that the sale of the home under power of sale had yielded insufficient proceeds to pay off the first mortgage. There was nothing left for the appellant.
The appellant claimed against Capital direct for negligence, breach of contract, and breach of fiduciary duty. Capital Direct succeeded on a motion for summary judgment on the basis that the action was started after the expiry of two-year limitation period in the Limitations Act, 2002. On appeal, the appellant argued that it was the ten-year limitation period in section 43 of the Real Property Limitations Act that applied. Section 43 provides as follows:
Mortgage covenant
(1) No action upon a covenant contained in an indenture of mortgage or any other instrument made on or after July 1, 1894 to repay the whole or part of any money secured by a mortgage shall be commenced after the later of,
(a) the expiry of 10 years after the day on which the cause of action arose; and
(b) the expiry of 10 years after the day on which the interest of the person liable on the covenant in the mortgaged lands was conveyed or transferred.
The appellant’s position was that her claim affected real property because her loss was the reduced value of her security interest in the property. She relied on the Court of Appeal decision in The Equitable Trust Co. v. Marsig (2012) for the proposition that the Limitations Act, 2002 does not apply to a claim affecting real property.
Justice Blair disagreed. The appellant’s claim sounded in negligence and contract. The negligence related to what Capital Direct allegedly did and said. The contract related to the transaction where the appellant acquired the second mortgage. Neither claim was within the category of claims described by section 43. Marsig involved a guarantee covenant contained in a mortgage and was distinguishable on that basis. The court’s obiter in Marsig about the application of the Limitations Act, 2002 to claims affecting real property was limited to the distinction between guarantees associated with land transactions, which are subject to the Real Property Limitations Act, and guarantees associated with contract claims, which are not.
Accordingly, section 43 does not apply to every action in which a mortgage or real estate is involved:
[18] We agree with the motion judge’s qualification regarding s. 43 of the RPLA, that “[t]o the extent that language could be read as encompassing every action in which a mortgage or piece of real estate is in any way involved, I do not believe that it accurately describes the present state of the law.” The motion judge’s statement at the end of para. 46 is unassailable, and makes all the difference: “Nothing that this court decides will affect any party’s relationship to the second mortgage or the property.” The appellant’s action, as against Capital Direct, is simply a negligence and contract claim, and is not a claim to an interest in land, as in Marsig.