COURT OF APPEAL FOR ONTARIO

CITATION: Zabanah v. Capital Direct Lending Corp., 2014 ONCA 872

DATE: 20141205

DOCKET: C58755

Blair, Watt and Lauwers JJ.A.

BETWEEN

Diana Zabanah

Plaintiff

(Appellant)

and

Capital Direct Lending Corp.,

 Anderson Sinclair LLP, Constantine Glinos and

Chicago Title Insurance Company

Defendants

(Respondents)

Antonio Conte, for the appellant

Anthony Cole and Kim T. Duong, for the respondent, Capital Direct Lending Corp.

Ted Evangelidis, for the respondent, Chicago Title Insurance Company

Heard: November 27, 2014

On appeal from the order of Justice Susan G. Himel of the Superior Court of Justice, dated April 22, 2014, with reasons reported at 2014 ONSC 2219.

By the Court:

[1]          In 2007 the appellant purchased a second mortgage on a home from the respondent, Capital Direct Lending Corp., as an investment. The mortgagor, Patricia Kabongo, had fraudulently informed Capital Direct that the balance of the first mortgage on her home was about $83,000, when in reality it exceeded $200,000. The appellant advanced about $83,000 to the mortgagor through the brokering effort of Capital Direct. Capital Direct bought title insurance on the second mortgage from the respondent Chicago Title Insurance Co., and assigned the insurance policy to the appellant when she purchased the mortgage.

[2]          The appellant became aware of the mortgagor’s fraud in early 2008, but renewed the second mortgage nonetheless in 2008, 2009 and 2010. The mortgagor made an assignment in bankruptcy in 2010. The first mortgagee advised the appellant in February 2011 that sale of the home under power of sale had yielded insufficient proceeds to pay off the first mortgage, leaving nothing for the appellant.

[3]          The appellant issued the statement of claim on November 23, 2011, seeking damages for negligence, breach of contract and breach of fiduciary duty against Capital Direct, and an order that Chicago Title cover her loss under the title insurance policy. Capital Direct moved for summary judgment on the basis that the action was started after the two-year limitation period in the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. Chicago Title moved for summary judgment under rule 20 of the Rules of Civil Procedure on the basis that the appellant’s title insurance policy specifically excluded recovery for any loss or damage that arose under the first mortgage. The motion judge granted summary judgment to both parties and dismissed the action against Capital Direct and Chicago Title.

[4]          There are two issues on this appeal.

[5]          The first is whether the appellant’s loss was covered by the Chicago Title’s insurance policy. The motion judge concluded that there was no genuine issue requiring a trial with respect to the claim under the policy. She found, at para. 83:

The clear language of the policy of insurance excludes the Maple Trust mortgage. The CTIC policy was intended to cover the validity and priority of the second mortgage (neither of which are challenged in this action) and cannot be construed as "investment" insurance. … CTIC had no role in giving the plaintiff assurances concerning the first mortgage before any advances of funds were made.

[6]          The motion judge did not err in her interpretation of the policy and in dismissing the claim against Chicago Title.

[7]          The second issue concerns the limitation period. The first sub-issue is when the claim against Capital Direct was discovered. The second sub-issue is whether the limitation period applicable to the claim against Capital Direct was two years, as prescribed by the Limitations Act, 2002, or ten years, as prescribed by the Real Property Limitations Act, R.S.O. 1990, c. L.15 (“RPLA”).

[8]          The appellant’s discoverability argument was that she did not know who was responsible for her loss, injury or damage until 2011. In addressing this argument, the motion judge concluded that by April 2008, the appellant had the knowledge to infer that Capital Direct may have been the cause of her loss. She relied on this court’s statement in Kowal v. Shyiak, 2012 ONCA 512, 13 C.L.R. (4th) 7, at para. 18, that:

Certainty of a defendant's responsibility for the act or omission that caused or contributed to the loss is not a requirement. It is enough to have prima facie grounds to infer that the acts or omissions were caused by the party or parties identified.

[9]          The motion judge found that the appellant must be taken to have discovered her claim on or before April 3, 2008. She found, at para. 56:

Zabanah knew, by February 27, 2008, that the second mortgage was not adequately secured because there was insufficient equity in the property. She knew that Capital Direct was the party who had failed to inform her of these facts. By April 3, 2008, her husband was told that Capital Direct or CTIC might be liable and the possibility of retaining legal counsel had been raised. Yet she chose to renew the mortgage with the borrower three times (2008, 2009, and 2010), without making any further inquiries about what was being done to protect the investment or whether the insurance policy would provide coverage for the known problem.

[10]       These are factual findings and the appellant has not demonstrated that the motion judge made a palpable and overriding error. We agree with the motion judge that there is no basis to conclude that a solicitor-client relationship existed between the appellant and Capital Direct, or that their relationship gave rise to fiduciary responsibilities.

[11]       An important factor in the motion judge’s decision was her finding, at para. 13, that “[i]t is undisputed that, in February 2008, Capital Direct offered to reimburse Mr. Zabanah for up to $500 in fees if he chose to consult with or obtain a lawyer. Mr. Zabanah and the plaintiff did not consult with counsel.”

[12]       The appellant has not demonstrated that the motion judge made a palpable and overriding error with respect to when the appellant’s cause of action against Capital Direct was discoverable.

[13]       With respect to the applicable limitation period, the appellant submits that the motion judge erred in determining that the two-year limitation period prescribed by the Limitations Act, 2002, applies. Instead, she argues that s. 43 of the RPLA applies and sets a ten-year limitation period.

[14]       The appellant relies on this court’s decision in The Equitable Trust Co. v. Marsig, 2012 ONCA 235, 109 O.R. (3d) 561, for the proposition that the Limitations Act, 2002 deals with limitation periods for claims other than those affecting real property. She draws particular support from a few lines in Marsig, at paras. 27 and 30, where Perell J. (ad hoc) stated:

Put simply, the Limitations Act, 2002, was enacted to deal with limitation periods other than those affecting real property.

…

It has been the case historically that guarantees associated with land transactions have different limitation periods from guarantees associated with contract claims. Moreover, as already noted, it is my view that the Legislature intended that all limitation periods affecting land be governed by the Real Property Limitations Act.

[15]       The appellant argues that the motion judge erred in concluding, at para. 46, that “Zabanah’s claims do not affect any land”, because the loss she suffered was the reduced value of her security interest in the land.

[16]       We disagree. The appellant’s claim against Capital Direct is based in negligence and in contract.  The negligence relates to what Capital Direct is alleged to have done and to what its representative said to her, and assurances that were given following discovery of the fraud.  The contract relates to the transaction whereby the appellant acquired the second mortgage in question.  Neither of these claims constitutes an “action upon a covenant contained in an indenture of mortgage or any other instrument …. to repay the whole or part of any money secured by a mortgage”, which is what is required for the application of s. 43 (1) of the Real Property Limitations Act. 

[17]       Marsig involved a guarantee covenant “contained in” a mortgage and is distinguishable on that basis: see Marsig, at paras. 19-21 and 23.  The motion judge recognized this. Admittedly, the potential reach of the language in the last sentence in para. 30 of Marsig, “that the Legislature intended that all limitation periods affecting land be governed by the Real Property Limitations Act”, is very broad. But, in our view, these words must be interpreted in the context of Perell J.’s immediately preceding point: “It has been the case historically that guarantees associated with land transactions have different limitation periods from guarantees associated with contract claims.”

[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.

[19]       Accordingly, we agree with the motion judge that the Limitations Act, 2002 governs the appellant’s claims against Capital Direct, and the RPLA does not apply. The action against Capital Direct is time-barred and the motion judge correctly dismissed it.

[20]       The appeal is dismissed, with costs payable by the appellant, in the amount of $7500 to Chicago Title, and $12,500 to Capital Direct, both all-inclusive.

Released: December 5, 2014 “RAB”

                                                                             “R. A. Blair J.A.”

                                                                             “David Watt J.A.”

                                                                             “P. Lauwers J.A.”