243930 Alberta Ltd. v. Wickham; 243930 Alberta Ltd. v. Dunn; 243930 Alberta Ltd. v. Crook *
Indexed as: 243930 Alberta Ltd. v. Wickham (C.A.)
75 O.R. (2d) 289
 O.J. No. 1781
Action Nos. 763/87, 764/87 and 765/87
Court of Appeal for Ontario
Lacourciere, Blair and McKinlay JJ.A.
October 4, 1990.
* Applications for leave to appeal to the Supreme Court of Canada dismissed with costs April 4, 1991 (La Forest, Cory and Stevenson JJ.). S.C.C. File Nos. 22212, 22213, 22214. S.C.C. Bulletin, 1991, pp. 887, 888 and 889.
Conflict of laws — Choice of law — Lex fori — Lex causae — Whether foreign law procedural or substantive — Ontario residents investing in multiple unit residential building (MURB) in Alberta — Investors agreeing to pay amounts due and payable under mortgages — Investors agreeing to waive protection of Alberta statute that precluded any action on covenant contained in mortgage — Alberta statute prohibiting waiver — Alberta statute substantive and not procedural — Not against public policy for Ontario court to apply Alberta statute — Action on covenant in mortgage dismissed — Law of Property Act, R.S.A. 1980, c. L-8, s. 41.
In three actions, the plaintiff sued three defendants who had purchased investment units in a multiple unit residential building (MURB) in Calgary, Alberta. The plaintiff was an Alberta corporation with its head office in Alberta. Its officers and director resided in Ontario where the plaintiff primarily conducted its business of creating and administering MURB investments. The plaintiff sold 12 units to B, who resided in Ontario and who sought out potential investors in Ontario.
The defendants were Ontario residents who entered into agreements with the plaintiff and B. The agreements were drafted and signed in Ontario. B gave the plaintiff five-year interest-only unit mortgages in the amount of $70,000 and $15,000 on each unit. The defendants signed assumption agreements with the plaintiff in which the defendants agreed to pay the amounts due and payable under the mortgages. Each mortgage contained a waiver of s. 34 of the Alberta Judicature Act, the predecessor of s. 41 of the Alberta Law of Property Act. The Alberta legislation precluded any action on the covenant contained in the mortgage and stated that any waiver of the benefit of the legislation was against public policy and void. The plaintiff moved for summary judgment to enforce the mortgages. The motions were granted, the motions judge holding that while the proper law of the contract was that of Alberta, the provisions of s. 41 of the Law of Property Act were procedural and would not be applied in Ontario. The defendants appealed.
Held, the appeals should be granted and there should be an order dismissing the motion for summary judgment.
Per McKinlay J.A. (Blair J.A. concurring): The carrying out of the contract in its major aspect — transfer of title to land, registration of title and management of the units — all took place in Alberta. The motions judge was correct in concluding that the proper law of the contract was that of Alberta, the situs of the real property. The judge, however, was wrong in holding that the defendants were not entitled to the protection of s. 41 of the Law of Property Act. Substantive law is governed by the lex causae — in this case Alberta — and procedural law is governed by the lex fori — in this case Ontario. The motions judge was wrong in concluding that the provisions of the Law of Property Act were procedural. The Alberta legislation provided that the mortgagee’s remedies were limited to those available against the real property. This did away with any personal liability of the mortgagor and was a rule of substance. The plaintiff was not entitled to rely on the waiver provision in the mortgage. While it was true that Ontario courts will not apply public policy of other jurisdictions if that policy is contrary to Ontario public policy, there was no public policy rule in Ontario that precluded the protection of Ontario residents against the kind of litigation pursued in this action when the law of the situs affords such protection.
Per Lacourciere J.A. (concurring): The law of Alberta was the applicable law and it did not conflict with any procedural rule in Ontario. It was necessary to characterize the provisions of the Alberta statute and determine whether they were substantive or procedural. In general, whatever relates to the rights of the parties is substantive and whatever relates to the remedy is procedural. The test should be whether the foreign rule was too inconvenient to apply. If the answer was negative, the foreign rule was substantive. Here, the foreign statute was not too inconvenient to apply and hence was substantive. The Alberta statute was concerned with more than the remedy in an action brought on a mortgage of land: it restricted the right of the mortgagee to foreclosure, while taking away the right of action for payment on a mortgage covenant. The motions judge erred in holding that the Alberta statute was procedural in nature. Further, the prohibition against waiver contained in the Alberta statute was not contrary to any public rule in Ontario in the sense that it is not contrary to our conceptions of essential justice and morality.
Cases referred to
Canadian Acceptance Corp. v. Matte (1957), 9 D.L.R. (2d) 304, 22 W.W.R. 97 (Sask. C.A.); German Savings Bank v. Tetrault (1904), 27 C.S. 447 (Que. S.C.); Imperial Life Assurance Co. v. Colmenares,  S.C.R. 443, 62 D.L.R. (2d) 138,  I.L.R. Paragraph1-183; National Surety Co. v. Larsen (1929), 42 B.C.R. 1,  4 D.L.R. 918,  3 W.W.R. 299 (C.A.); National Trust Co. v. Mead (1990), 71 D.L.R. (4th) 488, 112 N.R. 1,  5 W.W.R. 459 (S.C.C.); Northern Trusts Co. v. McLean (1926), 58 O.L.R. 683,  3 D.L.R. 93 (C.A.); Sigurdson v. Farrow (1981), 15 Alta. L.R. (2d) 180, 121 D.L.R. (3d) 183 (Q.B.); Toronto General Trusts Corp. v. R.,  A.C. 679, 46 D.L.R. 318,  2 W.W.R. 354 (P.C.); Traders Finance Corp. v. Casselman,  S.C.R. 242, 22 D.L.R. (2d) 177
Statutes referred to
Income Tax Act, S.C. 1970-71-72, c. 63
Judicature Act, R.S.A. 1922, c. 72, s. 37, 37(o)(i)
Law of Property Act, R.S.A. 1980, c. L-8, s. 41 [am. 1982, c. 24, s. 3], 41(1), (1)(a), (2) [am. 1982, c. 24, s. 3], (5)
Limitation of Civil Rights Act, R.S.S. 1953, c. 95, s. 18 Limitation of Civil Rights Act, R.S.S. 1978, c. L-16, s. 40(1), (2)
Rules and regulations referred to Code of Procedure (New York)
Rules of Civil Procedure, O. Reg. 560/84, rule 20.04(2) Authorities referred to
Bar’s Private International Law, 2nd ed.
Castel, J.-G., Canadian Conflict of Laws, 2nd ed. (Toronto: Butterworths, 1986), pp. 15-16, 45 footnote 127, 46, 116-18
Coote’s Treatise on the Law of Mortgages, ed. by Sydney Edward Williams, 8th ed. (London: Stevens & Sons, 1912), p. 9
Dicey & Morris on the Conflict of Laws, by J.H.C. Morris, general editor, et al., 11th ed. (London: Stevens & Sons), pp. 173, 176
Foote, John Alderson, Foreign and Domestic Law: A Concise Treatise on Private International Jurisprudence based on the Decisions of the English Courts, 3rd ed. (London: Stevens & Haynes, 1903)
Restatement of the Law: Second (Conflict of Laws 2d) (St. Paul, Minn.: American Law Institute, 1921), vol. 1, p. viii
APPEALS against motions granted for summary judgment to enforce mortgages.
Morris M. Kertzer and A. Mello, for appellants.
R.L. Falby, Q.C., and A. Taylor, for respondent.
LACOURCIERE J.A. (concurring):– I have had the advantage of reading the reasons for judgment prepared by my colleague, McKinlay J.A., and I agree with her proposed disposition of the appeal and with her reasons. I desire, however, to make additional reference to the case law and to other textbooks devoted to conflict of laws.
The respondent Alberta corporation commenced a legal proceeding seeking a declaration that the obligations of each appellant under a mortgage assumption agreement were to be determined under the laws of the Province of Ontario. The respondent was successful before the motions court judge and, by way of summary judgment, obtained the declaration sought.
The facts accepted in the court below show that the appellants, who are Ontario residents, agreed to purchase from an Ontario land developer certain units in a multiple unit residential building (MURB) project situate in Calgary, Alberta. The contracts were drafted and executed in Ontario. By virtue of an assumption agreement, the appellants assumed mortgages given by the developer as their trustee, and agreed to be bound by the mortgage covenants. The appellants also signed a waiver of the Alberta legislation which precludes any action on a covenant for payment contained in a mortgage.
Section 41 [am. 1982, c. 24, s. 3] of the Alberta Law of Property Act, R.S.A. 1980, c. L-8, is reproduced in my colleague’s judgment. It is sufficient for my purpose to reproduce for convenience, ss. 41(1)(a) and 41(5):
41.(1) In an action brought on a mortgage of land, whether legal or equitable, or on an agreement for the sale of land, the right of the mortgagee or vendor is restricted to the land to which the mortgage or agreement relates and to foreclosure of the mortgage or cancellation of the agreement for sale, as the case may be, and no action lies
(a) on a covenant for payment contained in the mortgage or agreement for sale …
. . . . .
(5) Any waiver or release hereafter given of the rights, benefits or protection given by subsections (1) and (2) is against public policy and void.
I agree with my colleague and with the learned motions court judge for the reasons given by them that the law of Alberta is the applicable law, inasmuch as the assumption agreement, under which the action is brought, incorporates the mortgage itself.
I also agree with my colleague that the learned motions court judge erred in his reliance on Northern Trusts Co. v. McLean (1926), 58 O.L.R. 683,  3 D.L.R. 93 (C.A.), in holding that the relevant Alberta statute was procedural in nature and not applicable in an action brought in an Ontario court. The relevant provision of the statute in that case did not limit the remedies available to a mortgagee but merely stipulated the way in which the judgment could be realized.
I would like to add some reasons to support the conclusion that the Alberta statute relied upon by the appellants should be characterized as substantive and not merely procedural.
The elementary starting point requires a definition of terms. The lex situs, where the MURBs are situate, is, of course, the law of Alberta, whereas the lex fori is the law of Ontario, where the legal proceedings were taken. The lex causae is the system of law found to be applicable under the conflict of laws rule of the forum (J.-G. Castel, Canadian Conflict of Laws, 2nd ed. (Toronto: Butterworths, 1986), at pp. 15-16).
In selecting the proper law, characterization of the question is crucial where reference to a foreign law is envisaged. Professor Castel, after noting that Canadian courts always apply their own procedural rules to a case involving a foreign element, offers the following general helpful comment (Castel, Canadian Conflict of Laws, pp. 116-18]:
The question whether or not a particular rule of law of the lex fori or of the lex causae is one of substance or procedure is not easy to answer. The difficulty, as so often, is not the statement but the application of the principle.
What test should be used by the court to distinguish between substance and procedure?
The distinction between substance and procedure, or right and remedy, is an important subject of characterization. If as a result of characterization of the factual situation, the proper law selected is the lex fori, the court will apply all the rules of the law of the forum, whether substantive or procedural. In such a case, there is no need to distinguish between substance and procedure. If the result is that the proper law is a foreign law, the court will have to enquire whether the action must nevertheless be dismissed on the ground of non-compliance with some procedural rule of the lex fori. If the answer to this enquiry is in the affirmative, there will be no need to resort to any foreign law, but if the answer is in the negative, the court will have to be informed about the foreign law, and will then have to characterize the provisions of that law, disregarding those provisions that are procedural, and applying only those that are substantive.
The characterization of a particular rule, whether foreign or domestic, as substantive or procedural, cannot be done in the abstract. The solution depends upon the objectives to be achieved by the court in the case that is pending before it. The general objectives of conflict of laws must also be taken into consideration. Procedure and substance are not clear-cut and unalterable categories. Their contents may vary from case to case. The line that may be drawn between substance and procedure is not the same for all times and for all purposes. Logical analysis is of little help here. Practical and policy considerations seem to be paramount.
Depending upon the nature of the problem and the relevant circumstances, the court may have some good reasons to characterize a foreign rule as procedural although it is not so according to the concepts of the foreign legal system. This is better than resorting to public policy. However, the concepts of the lex fori applicable to purely domestic situations should not necessarily be used in order to characterize the foreign rule. A domestic rule may never have been designed to deal with international situations. The fact that a particular local rule is procedural by the lex fori does not always mean that a similar foreign rule should receive the same characterization.
It seems to be more practical for the court faced with the characterization of a foreign rule of law to refer to the concepts of that law in order to ascertain the nature of the rule, provided that the result is not incompatible with the purpose of the conflicts rules of the forum and provided that the foreign rule is not characterized in the foreign law for some domestic purpose of that law.
. . . . .
As a matter of policy it would seem desirable to restrict the scope of the procedural definition so as not to frustrate the fundamental purposes of conflict of laws. The test should be: is the foreign rule too inconvenient to apply? If the answer is negative the foreign rule is substantive.
In general, Canadian courts have held that whatever relates to the remedy employed is procedural, and whatever relates to the rights of the parties is substantive. This distinction is inadequate and not helpful as it is still necessary to determine whether the foreign or domestic rule relates to the right or to the remedy. Actually, in order to decide whether a rule is substantive or procedural one must analyse the specific questions calling for decision as well as their legal background and factual context.
In Canada, the courts have often had to determine (a) whether the relevant foreign rule or statutory provision is substantive or procedural, (b) whether the relevant domestic rule or statutory provision is procedural or substantive. In case (a) characterization should be by the lex causae whereas in case (b) it should be by the lex fori. However, as mentioned above, the solutions should be tempered by policy considerations.
Having recognized that the proper law is the Alberta law, which is not in conflict with any procedural rule of Ontario (the lex fori) it becomes necessary to characterize the provisions of the Alberta statute. Applying the recommended test, after weighing the consequences of the characterization (i.e., the practical and policy considerations), I am satisfied that the foreign statute is not too inconvenient to apply, and hence, substantive. The Alberta statute is concerned with more than the remedy in an action brought on a mortgage of land: it restricts the right of the mortgagee to foreclosure, while the right of action for payment on a mortgage covenant is taken away. I share my colleague’s opinion that this is substantive, and I know of no policy consideration which should modify this characterization.
In German Savings Bank v. Tetrault (1904), 27 C.S. 447, the Quebec Superior Court dealt with a choice of law problem which arose in parallel but different circumstances. In that case, the plaintiff had failed to realize its full indebtedness after foreclosure proceedings and sale of the mortgaged premises in the State of New York. It commenced action in the Province of Quebec on a collateral guarantee executed by the defendant while she was the owner of the mortgaged premises. The defence relied on the New York Code of Procedure which provided that no action could be commenced or maintained to recover any part of the mortgage debt without leave of the court in which a foreclosure action was pending or resolved. In dismissing the action, the court noted that the plaintiff had failed to prove an essential condition: specifically, the existence of a right of action in New York. The court held that it had to apply the law of the State of New York where the right of action was conditional on the permission of the court, “a substantive part of the right of action” (p. 452 C.S.). The learned superior court judge referred to Bar’s Private International Law, 2nd ed., then quoted from John Alderson Foote, Foreign and Domestic Law: A Concise Treatise on Private International Jurisprudence based on the Decisions of the English Courts, 3rd ed. (London: Stevens & Haynes, 1903), including the following at p. 454 C.S.:
The lex fori determines the form and nature of the action by which a personal liability is sought to be enforced … but the lex fori can never convert into a personal liability that which is not so by the law which created the obligation.
The Superior Court judge then concluded, at p. 455 C.S.:
At first sight, it might be contended that the difficulty raised by thedefendant, founded on the want of permission to institute her present action, is similar to what would arise on a plea of prescription, in which as we have seen the lex fori, and not the lex loci applies. But it seems to me there exists a vital distinction. The rule applying the lex fori to cases of prescription is founded on the assumption that statutes of limitation do not deny the continued existence of the obligation, but only, after the prescribed time, deny the remedy, and it is argued that any state may determine the time within which its own courts may enforce a contract. But where by the laws of the country, where the contract was made, the obligation has become extinct, it cannot be revived by a different law which prevails in the place where the obligation is sought to be enforced. What if by the laws of the country where the contract was made, the obligation has been suspended by a condition unfulfilled?
The court concluded that the mortgage creditor, who had relied upon the property in its foreclosure proceedings, could not exercise personal recourse in New York or elsewhere unless he could persuade the court before whom the foreclosure proceedings took place that he had not been paid and that he ought to be permitted to exercise personal recourse against others liable.
Both the Supreme Court of Canada in Traders Finance Corp. v. Casselman,  S.C.R. 242, 22 D.L.R. (2d) 177, and the Saskatchewan Court of Appeal in Canadian Acceptance Corp. v. Matte (1957), 9 D.L.R. (2d) 304, 22 W.W.R. 97, held that a Saskatchewan statute removing a vendor’s right of personal recovery of the unpaid purchase price in cases where a vendor reserved a lien on the article sold should be characterized as substantive and not procedural legislation.
In the case under appeal, the right to personal recourse is taken away entirely by a statute which was intended to protect the mortgagor from a possible injustice by limiting the mortgage creditor to the remedy of foreclosure. The provision of the Alberta statute is imperative, and any waiver or release of its protection is declared to be against public policy and void. It is difficult to conceive how a binding provision of the law, which cannot yield to the desire of the parties to dispense with it, can be considered merely procedural. See German Savings Bank, supra, at pp. 452-53 C.S.
The Saskatchewan Limitation of Civil Rights Act, R.S.S. 1978, c. L-16 contains a provision similar to that of the Alberta statute, restricting the mortgagee’s right to recover the unpaid balance due on a mortgage. The mortgagee’s remedy is restricted to foreclosure or sale of the land; pursuant to s. 40(1), any agreement purporting to waive the protection of the Act is “null, void and of no effect”. National Trust Co. v. Mead, a judgment of the Supreme Court of Canada (Lamer C.J.C., Wilson, La Forest, Gonthier, L’Heureux-Dube, Cory and McLachlin JJ.) released August 16, 1990 [now reported 71 D.L.R. (4th) 488, 112 N.R. 1,  5 W.W.R. 459], recognized the statutory intent to protect individual mortgagors. However, by s. 40(2), the statute created an exception whereby corporate mortgagors, and, as the court interpreted it, their corporate successors and assigns, are permitted to waive the protection of the Act. Wilson J., at p. 12 [p. 497 D.L.R.], found that these provisions are concerned with the protection of individuals from personal liability for mortgage deficiencies and, therefore, “[t]he meaning to be attributed to the provisions of the Act should reflect these policy concerns”. I mention the National Trust case because the purpose of the Saskatchewan legislation is similar to that of Alberta, and indicates the court’s concern with carrying out the purposes and policy of the Act.
I agree with my colleague that the prohibition against waiver contained in s. 41(5) of the Alberta statute is not contrary to any public policy rule in Ontario in the sense that it is not “contrary to our conceptions of essential justice and morality” (National Surety Co. v. Larsen (1929), 42 B.C.R. 1,  4 D.L.R. 918,  3 W.W.R. 299 (C.A.), at pp. 919-20 D.L.R., per Macdonald C.J.B.C.).
The original mortgage contained an express waiver of the provisions of s. 41 of the Alberta Law of Property Act in the following words:
23. The mortgagor hereby acknowledges that the mortgagor is aware of the provisions of Sub-Sections (17) and (18) of Section 34 of the “Judicature Act” being Chapter 193 of the Revised Statutes of Alberta, 1970, as amended, whereby it is provided that in any action brought upon any mortgage or agreement for sale of land the remedy of the mortgagee is limited to the land alone and no action shall lie on the covenant for payment contained in such Mortgage, and in consideration of the within Mortgage, the mortgagor hereby waives the said provisions of the said Act and agrees with the mortgagee, its successors and assigns, that in the event that the mortgagor is in default in payment of the loan, secured by and payable under this Mortgage, then the mortgagee may proceed against the mortgagor under this Mortgage, and on the mortgagors personal covenants herein contained notwithstanding the provisions of the said Act or any legislation similar thereto or in replacement thereof.
My only concern in this respect is that the common expectations of the parties, whether justified or not, was that the Alberta prohibition would not apply to their transaction. Normally, a court will seek to protect the justified expectation of the parties, a factor recognized as relevant in choosing the applicable law. See Castel, Canadian Conflict of Laws, at p. 46, referring to Restatement of the Law: Second (Conflict of Laws 2d) (St. Paul, Minn.: American Law Institute, 1921), vol. 1 at p. viii, and other authorities listed in footnote 127 at p. 45.
I do not think that this factor should prevail in the present case inasmuch as the parties could not justifiably expect that any court would disregard the lex causae where the waiver, which is the basis of the expectation, is prohibited and void as against public policy. The court will not protect an unjustified expectation. In my view, the Alberta statute as intended to protect mortgagors of land situate within that province, without consideration of the residence of the mortgagor.
I would therefore allow the appeals as proposed by my colleague McKinlay J.A. MCKINLAY J.A. (BLAIR J.A. concurring):– These three appeals were heard together, being based on the same set of facts and relying on the same materials and authorities. All three appeal identical decisions and reasons therefor given by the trial judge on motions for summary judgment. The following reasons apply equally to all three appeals.
The main issue in the appeals is whether the law of Alberta or the law of Ontario applies to the agreements entered into between the parties in the circumstances summarized by the learned trial judge in the following quotation from his reasons:
The plaintiff, an Alberta corporation, brought a motion for an order granting summary judgment to the plaintiff on the grounds that the statement of defence failed to raise any valid defence in this action. Although the plaintiff is an Alberta corporation with its head office in Alberta, its officers and sole director have always resided in Ontario. Its business, the creation and administration of multiple unit residential building (MURB) investments has been primarily conducted in Ontario. The defendant is a resident of Ontario.
In May 1981 the plaintiff sold 12 units of a MURB investment project in Calgary, Alberta, to Francis Broadfoot who resides and carries on business as a land developer in Ontario. Mr. Broadfoot then sought out potential investors in Ontario. All negotiations between the plaintiff and Broadfoot, and between Broadfoot and/or their financial advisor with regard to the above transaction were conducted in Ontario. The defendant entered into certain agreements relating to the MURBS with the plaintiff and Mr. Broadfoot and all these contracts were drafted and executed in Ontario. On April 30, 1982, Mr. Broadfoot as trustee for the defendant gave the plaintiff individual five-year interest-only unit mortgages in the amount of $70,000 and $15,000 on each unit effective September 1, 1981. Each mortgage contained a waiver of s. 34 of the Alberta Judicature Act, the predecessor of s. 41 of the Alberta Law of Property Act. Under s. 41 any waiver or release of the rights, benefits or protection given by the section is against public policy and void. On June 17, 1982, the defendant signed assumption agreements with plaintiff effective September 1, 1981 in which the defendant assumed these mortgages and agreed to pay the amounts due and payable under these mortgages. The assumption agreement also provided that the mortgagor (sic, owner) would at all times be bound by every covenant contained in the mortgage to the same extent as if the mortgagor (sic, owner) had executed the mortgage. The assumption agreement entered into by the defendant is not registered on title in Alberta.
The trial judge gave summary judgment in favour of the plaintiff, ordered a reference to the master to determine the amount owing on the mortgages involved, and declared that the Alberta Law of Property Act, R.S.A. 1980, c. L-8, s. 41(1) “applies to this action but is procedural only, and does not preclude this action against the mortgagor”.
The question on this appeal is whether the respondent was entitled to summary judgment pursuant to rule 20.04(2) of the Rules of Civil Procedure, O. Reg. 560/84, on the basis that the materials filed show no genuine issue for trial with respect to the claim.
The following issues were addressed on appeal:
1. Is the proper law of the contract in this case the law of Ontario or the law of Alberta?
2. If the proper law of the contract is the law of Alberta, is the plaintiff/respondent nonetheless entitled to judgment in Ontario because:
(a) s. 41(1) of the Law of Property Act by its wording does not apply to the facts of this case;
(b) s. 41(1) is procedural only, and therefore should not be applied by the Ontario courts;
(c) the protection of s. 41(1) of the Act was specifically waived by the defendant and the waiver, despite the provisions of s. 41(5) of the Act, is effective against this defendant since he is not within the class of persons protected by the statute — being a person outside the province of Alberta, who contracted outside that province, and who evidenced by the waiver of the provisions of s. 41(5) his intent to be bound by the personal covenant in the mortgage.
1. Proper law of the contract
The factors relevant to determining the proper law of the contract were canvassed by the motions court judge and he concluded that the proper law of this contract is Alberta law. The respondent takes issue with this conclusion. It argues that the mortgages involved were only one small part of a large overall contract for the purchase of units in a multiple use residential building (MURB), as defined in the Income Tax Act, S.C. 1970-71-72, c. 63, and that consequently the proper law of the contract should be that applicable to the overall transaction, which he argues is, on the facts of this case, Ontario law. The purchase of the MURB units was completed on or about September 1, 1981 and the mortgages were taken back by the vendor in part satisfaction of the purchase price.
On the one hand, the mortgages could be considered to be the only remaining portion of a real property transaction which has long since been completed in its major aspects and thus subject to the well established conflict of laws rule that the proper law of a contract of mortgage of real property is the law of the situs of the real property: Toronto General Trusts Corp. v. R.,  A.C. 679, 46 D.L.R. 318,  2 W.W.R. 354 (P.C.).
On the other hand, the respondent argues that the real property transaction was only part of a larger tax driven investment transaction which involved, in addition, a cash flow guarantee agreement and a unit management agreement, pursuant to which the vendor/respondent was to perform continuing services for the purchaser/appellant with respect to the MURB investment. While the action in this case is on the covenant to pay contained in the mortgages, the statement of claim sets out details of the total dealings between the parties, obviously with a view to establishing that the proper law of the contract is the law of Ontario, as that having the “closest and most substantial connection” with the “contract as a whole”: see Imperial Life Assurance Co. v. Colmenares,  S.C.R. 443, 62 D.L.R. (2d) 138,  I.L.R. Paragraph1-183, at p. 448 S.C.R.
While it is true that the documentation in this case was executed by the appellant in Ontario, the evidence also indicates that the negotiations involved in this deal with Broadfoot, the original purchaser who assigned ownership of the property to the defendant, took place in Alberta. The appellant admits that the transaction was tax driven, but argues that it was nonetheless, in its primary aspects, an agreement for the purchase, mortgage, and management of real property in the Province of Alberta. Regardless of the facts involving execution of documents, the carrying out of the contract in its major aspects — transfer of title to the land, registration of title, and management of the units — all took place in the province of Alberta. I see no reason in this case for finding that the proper law of the contract is other than the law of the situs of the real property.
2. Entitlement of the respondent to judgment in Ontario Despite his finding that the proper law of this contract is the law of Alberta, the learned motions court judge considered himself bound by the decision of this court in Northern Trusts Co. v. McLean (1926), 58 O.L.R. 683,  3 D.L.R. 93, which held that a predecessor provision to s. 41 of the Law of Property Act, namely, s. 37 of the Judicature Act, R.S.A. 1922, c. 72, was procedural only, and therefore should not be applied by the courts of Ontario. Based on this, he gave summary judgment to the plaintiff on the covenant.
(a) The respondent’s first argument addressed to the application of s. 41(1) of the Law of Property Act was that the plain words of s. 41(1) do not apply to the facts of this case. Section 41 is as follows:
41.(1) In an action brought on a mortgage of land, whether legal or equitable, or on an agreement for the sale of land, the right of the mortgagee or vendor is restricted to the land to which the mortgage or agreement relates and to foreclosure of the mortgage or cancellation of the agreement for sale, as the case may be, and no action lies
(a) on a covenant for payment contained in the mortgage or agreement for sale,
(b) on any covenant, whether express or implied, by or on the part of a person to whom the land comprised in the mortgage or agreement of sale has been transferred or assigned subject to the mortgage or agreement for the payment of the principal money or purchase money payable under the mortgage or agreement or part thereof, as the case may be, or
(c) for damages based on the sale or forfeiture for taxes of land included in the mortgage or agreement for sale, whether or not the sale or forfeiture was due to, or the result of, the default of the mortgagor or purchaser of the land or of the transferee or assignee from the mortgagor or purchaser.
(2) In an action brought on a mortgage of land or on an agreement for sale of land
(a) the order nisi in the case of a mortgage, or the order for specific performance in the case of an agreement for sale, shall direct that if the defendant fails to comply with the terms of the order, the land that is subject to the mortgage or agreement for sale is to be offered for sale at a time and place, in a manner, after any advertisement of sale, and at any price that the Court considers proper, and
(b) if the land is not sold at the time and place so appointed, the Court may either order the land to be again offered for sale or make a vesting order in the case of an agreement for sale, and on the making of a vesting order or cancellation order, every right of the mortgagee or vendor for the recovery of any money whatsoever under and by virtue of the mortgage or agreement for sale in either case ceases and determines.
(3) Nothing in subsection (2) applies to an order nisi or order for specific performance to which the consent of the debtor has been obtained.
(4) Notwithstanding the provisions of any order nisi or order for specific performance, it is not necessary for the land to be advertised or offered for sale when, subsequent to the making of the order, the debtor consents
(a) to a vesting order in the case of a mortgage, or
(b) to an order of cancellation in the case of an agreement for sale, without that advertising or offering for sale.
(5) Any waiver or release hereafter given of the rights, benefits or protection given by subsections (1) and (2) is against public policy and void.
Section 41(1) applies by its words to “an action brought on a mortgage of land”. The position of the respondent is that this action is brought on a covenant in the assumption agreement rather than on a covenant in the mortgage, and that therefore s. 41(1)(a) does not apply in this case. A perusal of the statment of claim shows that it was very carefully drafted to avoid stating that the monetary claim is based on the covenant to pay in the mortgage, but the facts themselves as set out in the statement of claim make it clear that such is the case. The appellant purchased the condominium unit involved in September of 1981 from Mr. Francis Broadfoot. Mr. Broadfoot had previously purchased the property from the respondent and had given back mortgages to it. The appellant, as owner, entered into an assumption agreement with the respondent as mortgagee, under which he agreed to pay to the mortgagee all moneys payable “under or by virtue of the Mortgage” and to “at all times be bound by every covenant contained in the Mortgage to the same extent as if the Owner had executed the Mortgage”. I see no merit in the argument that this was not a claim under the mortgage. If the covenant in the mortgage did not exist, there could be no lawsuit brought by virtue of the assumption agreement, and the assumption agreement itself indicates that it is the covenants in the mortgage which the owner must satisfy. It would be surprising indeed if the provisions of s. 41 [am. 1982, c. 24, s. 3] were available to protect mortgagors in Alberta who purchase property and give back a purchase money mortgage to their vendor, and not available to protect subsequent purchasers who assume liability for all of the covenants in those mortgages.
In a similar vein it is argued that this action constitutes a separate action on a specialty debt which is evidenced by the covenant to pay in the mortgage, and is therefore not an action brought on a mortgage of land, making the provisions of s.
41(1) inapplicable. Comments of Hodgins J.A. in Northern Trusts Co. v. McLean, supra, might seem to indicate that an action on the covenant is not an action brought on a mortgage of land. On p. 686 O.L.R., he quotes Coote’s Treatise on the Law of Mortgages, ed. by Sydney Edward Williams, 8th ed. (London: Stevens & Sons, 1912), p. 9, where the learned author states that the effect of such covenants is “to create a personal contract between the mortgagor and mortgagee for payment of the money, and to render the mortgagee to whom they are given a specialty creditor, but such covenants are not a necessary part of the mortgage security”. Hodgins J.A. then goes on to state that a separate action is available on the covenant in the mortgage. However, given the fact that the legislation with which the court was dealing in that case was substantially different than the legislation involved in this case, I do not consider those comments are determinative of the question whether or not a separate action on the covenant is something other than “an action brought on a mortgage of land” within the meaning of s. 41(1).
I am satisfied that in enacting s. 41(1) the legislature in Alberta intended that the words “action brought on a mortgage of land” include any action on the covenant. However, even if this were not so, s. 41(1)(a) would preclude the bringing of action on the covenant to pay in any event. Nothing in s. 41(1) indicates that a mortgagee may sue on the covenant to pay if the suit is launched in a separate action. The section clearly states “and no action lies on a covenant for payment contained in the mortgage or agreement for sale” (emphasis added). The opening words of the section — “In an action brought on a mortgage” — in no way limit the prohibition against suing on the covenant to claims made in a mortgage action. The portion of the section commencing with the words “and no action lies” stand on their own as a blanket prohibition against pursuing the types of claims described in the balance of the section.
(b) The appellant took issue with the characterization by the motions court judge of s. 41 of the Alberta Law of Property Act as procedural rather than substantive, and therefore not to be applied by Ontario courts in an action instituted in Ontario on a covenant in a mortgage. That opinion was based primarily on the decision of this court in the Northern Trusts case.
In that case, the court was dealing with the provisions of s. 37(o)(i) of the Judicature Act, R.S.A. 1922, c. 72. That provision reads as follows:
(o)(i) Unless otherwise ordered by the Court or a judge, the judgment or order of the Court in any action brought upon a mortgage of land shall provide that the amount adjudged or ordered to be paid by the defendant shall be realized in the first instance pro tanto by a sale of land mortgaged, provided that the Court or a judge may for good cause shown, notwithstanding such judgment or order, permit the plaintiff by order to realize the amount of his claim out of any other property of the defendant, and the Court may in any event make an order of injunction or order for the appointment of a receiver in the action for the purpose of preventing the disposal by the defendant, or by any person to whom the defendant has transferred his property under circumstances giving ground for the suspicion that he has done so with intent to defeat, hinder, delay, prejudice or defraud his creditors or any of them, of any or all of his property pending the result of realization of the property mortgaged, and may vary, amend or cancel such order or orders from time to time as may seem just, or may order foreclosure instead of sale in a proper case …
The motions court judge considered himself bound by the decision in that case which he felt dealt with a section similar to s. 41. However, a careful reading of the two provisions indicates that there are some very real differences between them. Clause 37(o)(i) concerned itself with the method of realizing on a judgment which had already been obtained in an action on a mortgage of land, requiring that, in the first instance, the judgment be realized by a sale of the land mortgaged. It in no way precluded recourse to other property owned by the mortgagor to satisfy the judgment, but merely indicated the order in which various types of property must be resorted to. Such a provision is clearly procedural.
In the materials filed on the appeal before us is an affidavit opinion of James B. Laycraft, barrister and solicitor, in Calgary, Alberta, wherein he opines that “pursuant to Alberta law, any claim by the plaintiff against the defendant based on the blanket mortgage executed by Francis Broadfoot, and on the assumption agreement executed by the defendant, is barred pursuant to s. 41(1) of the Law of Property Act”. He also opines that that provision is properly categorized as substantive rather than procedural. He bases this opinion on the decision of Medhurst J. of the Alberta Court of Queen’s Bench in Sigurdson v. Farrow (1981), 15 Alta. L.R. (2d) 180, 121 D.L.R. (3d) 183, which he states had not been commented on by the Alberta Court of Appeal as of the date of his affidavit, August 31, 1987, and thus constituted the law of the province of Alberta at that time. That opinion is not wholly satisfactory since in result in the Sigurdson case the court did not apply the law of Alberta. The land involved was situate in British Columbia and, therefore, the court found that the law of British Columbia, and not the law of Alberta, was the proper law of the contract.
In many cases it is very difficult to draw the line between substance, which is governed by the lex causae, and procedure, which is governed by the lex fori. However, in this case the problem of drawing the line seems to me to be fairly straightforward. It has often been said that the reason for not applying the procedural rules of another jurisdiction is to avoid the confusion and inconvenience of conducting a trial in accordance with rules with which a court is unfamiliar. In Dicey & Morris on the Conflict of Laws, by J.H.C. Morris, general editor, et al., 11th ed. (London: Stevens & Sons) at p. 173, one finds the following comment:
Dicey wrote that English lawyers gave “the widest possible extension to the meaning of the term ‘procedure’ “. As a matter of history, this is true; and a court may, even today, be tempted to extend the meaning of “procedure” in order to evade an unsatisfactory choice of law rule. But in general the attitude expressed by Dicey has fallen into disfavour precisely because it tends to frustrate the purposes of choice of law rules.
The types of laws which have generally been considered to be procedural are first, evidentiary rules such as admissibility, the requirements of written evidence, the competency or compellability of witnesses, the burden of proof, etc.; second, the question of who are the appropriate parties to a lawsuit; and third, questions of how a judgment may be executed. It is within the latter category of questions that this particular matter falls. There is a specific reference to this type of situation in Dicey & Morris, at p. 176, where it is stated:
… the method of enforcing a judgment is a matter of procedure. The lex fori determines what property of the defendant is available to satisfy the judgment, and in what order. Thus if the lex causae provides that mortgage debts are to be satisfied primarily out of the mortgaged property, this does not prevent the forum from ordering the satisfaction of such debts out of the debtor’s property generally. But if the lex causae provided that only the mortgaged property was liable for the debt, this would amount to a rule of substance to the effect that by the lex causae the “debtor” was under no personal liability. Such a rule would, therefore, be applied by the forum. Conversely, a court would not apply a rule of its own domestic law protecting the debtor from personal liability where the lex causae imposed such liability upon him.
There is a similar statement by Judson J. in Traders Finance Corp. v. Casselman,  S.C.R. 242, 22 D.L.R. (2d) 177, which case was not drawn to the attention of the trial judge. That case involved a conditional sales contract rather than a real property mortgage, and a suit on a promissory note for the unpaid balance under the contract. At issue was s. 18 of the Saskatchewan Limitation of Civil Rights Act, R.S.S. 1953, c. 95, which provided that:
18. When an article, the selling price whereof exceeds $100, is hereafter sold, and the vendor, after delivery, has a lien thereon for all or part of the purchase price, the vendor’s right to recover the unpaid purchase money shall be restricted to his lien upon the article sold …
It was argued before the Supreme Court of Canada that this legislation should be characterized as procedural, and consequently should not be applied by the courts in Manitoba where an action was brought on the promissory note. Judson J. stated at p. 247-48 S.C.R.:
The appellant, in my opinion, has set itself an impossible task in seeking to have this legislation characterized as procedural. The section takes away a personal right of action for the balance of the unpaid purchase price if a lien is reserved. It is in no way concerned with procedural rules for the enforcement of a right. Therefore, the fact that there is no equivalent legislation in the Province of Manitoba does not help the appellant. … Even in the absence of persuasive authority it is difficult to see how the Manitoba Court could have done other than characterize the matter as one of substantive law.
As stated earlier in these reasons, the law of Alberta in force at the time of the decision in the Northern Trusts case
— the 1922 Judicature Act, s. 37(o)(i) — provided that a judgment in a mortgage action was to be satisfied in a certain order and in a certain manner. Such a law, being procedural, would not prevent the forum from applying its own laws to require the satisfaction of the mortgage debt out of the debtor’s property generally. However, the law of Alberta applicable in this case is s. 41(1) of the 1980 Law of Property Act, which provides that the mortgagee’s remedies are limited to those available against the mortgaged real property itself. That, in effect, does away with any personal liability of the mortgagor and is consequently a rule of substance which would result in the forum applying the law of Alberta to any action on the mortgage — assuming the proper law of the contract to be Alberta law.
(c) The respondent’s last argument was based on the fact that the appellant had specifically waived the protection of s. 41 of the Act, and that despite the provisions of s. 41(5) of the Act that waiver was effective against this appellant since he is not within the class of persons protected by the statute.
Section 41(5), quoted above, states:
(5) Any waiver or release hereafter given of the rights, benefits or protection given by subsection (1) and (2) is against public policy and void.
The respondent argues that the courts of Ontario will not enforce public policy of another jurisdiction when that public policy is contrary to the public policy of Ontario. He also argues that this appellant is not within the class of persons intended to be protected by s. 41(5) because he is resident outside the Province of Alberta, entered into the relevant contracts outside the Province of Alberta, and, evidenced by his waiver of the provision of s. 41(5), intended to be bound by the personal covenant in the mortgage. In response to that position, it is only necessary to say, first, that it is true the courts of Ontario will not apply public policy of other jurisdictions if that public policy is contrary to that of Ontario. However, there is no public policy rule in Ontario which precludes the protection of Ontario residents against the kind of litigation pursued in this action when the law of the situs affords such protection. Second, it is self-evident that all persons executing a waiver of the “rights, benefits or protection” provided by subss. (1) and (2) [am. 1982, c. 24, s. 3] of s. 41 have indicated their intention to be bound by the personal covenant in the mortgage involved. Nonetheless, the Alberta legislature has seen fit to pronounce such waivers void and against the public policy of that province. It would be inappropriate to afford such protection to owners of Alberta real estate only if those owners were resident in the province of Alberta.
I am satisfied that the appellant is within the class of persons protected by s. 41(5), and that there is no public policy rule in Ontario which would preclude his being so protected.
I would allow all three appeals, set aside the summary judgments, the references to the master and the declarations made by the motions court judge, substitute a judgment dismissing the motions for summary judgment, and award costs to the appellants on appeal and before the motions court judge.
motions for judgment dismissed with costs.