Prothonotary did not err by treating mortgage security as distinct from covenant to pay

Federal court | Real Property | Mortgages | Priorities

Taxpayer DG used nominees to control properties and corporations to avoid paying taxes, including T and 164 Ltd. and was key player in obtaining mortgage from mortgagee R Corp.. DG was convicted of defrauding public of $3.5 million in taxes. Charging orders and writs of seizure and sale were made in favour of Canada Revenue Agency (CRA) $270,000 for unpaid taxes and Public Prosecution Service of Canada (PPSC) for $2 million fine. R Corp. was ordered to pay surplus funds from sale of properties of $380,228 into court, after taking into account principal, interest, costs and administrative expenses of mortgages, but later claimed that it was still owed $370,116 for legal fees and interest. Prothonotary made order that R Corp. had first priority and was entitled to $61,039 plus interest, CRA was second in priority and entitled to $270,057 plus interest, and PPSC was entitled to any remaining monies. R Corp. brought motion to appeal prothonotary’s order. Motion dismissed. Prothonotary did not err in finding that R Corp.’s conduct was commercially unreasonable and in finding that R Corp. knew that DG was real borrower of funds. Prothonotary did not err in piercing corporate veil of 164 Ltd., as shareholder T made no claim to any interest in properties or shares. R Corp. was not bona fide purchaser for value without notice. Prothonotary did not err by treating mortgage security as distinct from covenant to pay. Prothonotary did not err in interpreting law as it related to recovery of costs and expenses under s. 27 of Mortgages Act and in disallowing invoice and interest amounts.

Digiuseppe (Re) (2018), 2018 CarswellNat 7854, 2018 CarswellNat 7879, 2018 FC 1095, 2018 CF 1095, Patrick Gleeson J. (F.C.); affirmed (2017), 2017 CarswellNat 9352, 2017 FC 129, Kevin R. Aalto Prothonotary (F.C.).

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