Limitations Act of British Columbia – Mortgage Debts

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BC Limitations Act

In 2013 the new BC Limitation Act (“BCLA”) came into force.  There are many differences between the BCLA and the old BC Limitation Act.  Two of these differences are in relation to s. 14 and s. 15 of the BCLA.

S.14 of the BCLA relates to the limitation period for demand obligations. S. 14 states: “A claim for a demand obligation is discovered on the first day that there is a failure to perform the obligation after a demand for the performance has been made.” In other words, the countdown period for the limitation period does not start until the borrower under an agreement fails to pay an obligation once a demand has been made.  The old BC limitation act had a six year limitation period for demand obligations in which the countdown period for the limitation period would start from the date the initial obligation arose.

S.15 of the BCLA relates to the limitation period for realizing or redeeming security.  S. 15 states: “A claim to realize or redeem security is discovered on the first day that the right to enforce the security arises.”  This is a marked difference from the old BC Limitation Act which had a six year limitation period for bringing action on collateral that was not in the secured party’s possession.  Lenders in secured transactions need to be aware of this striking change.

These two provisions of the BCLA were judicially scrutinized for the first time since their enactment in the recent British Columbia Court of Appeal decision Leatherman v 0969708 BC Ltd., 2018 BCCA 33.  This case is illustrative of the wariness lenders should have in regards to the new BCLA.

In Leatherman a mortgage was granted to secure a debt.  Under the mortgage the loan was payable on demand, with payments of interest to be paid annually.  The Mortgagor failed to make a required interest payment on Oct 31, 2013.  This is effectively the date of default.  No further action was taken by the mortgagees until Nov, 2015.  At that time correspondence was exchanged between the parties in relation to the debt and its repayment.  A demand was made by the mortgagees on Nov 9, 2016.

The Court stated “This Mortgage, like most mortgages, includes both a covenant to pay and security for the debt. The covenant to pay the principal, considered on its face, and alone, is a demand obligation. With respect to it, s. 14 applies; that is, it is not payable until demand. The obligation to pay interest, however, is not a demand obligation because it was payable without demand on October 31 of each year. The Mortgage also provides that the property mortgaged is security for the debt. With respect to security for the debt, s. 15 of the Act applies. The right to realize on the security arises upon discovery of that right.”  In other words, the mortgage became enforceable as of the date of default, Oct 31, 2013, and would be statute barred two years later.  However, the mortgagor was still liable for his personal covenant as two years has not elapsed since demand for payment was made.

Going forward, where there is a default on a mortgage a lender must foreclose within two years of that default even if the loan, which is supported by the mortgage, is payable on demand, and no demand has been made.

The limitation period could be extended beyond two years after default where a mortgagor acknowledges liability.  This is governed by s.24 of the BCLA.  S. 24(1)(a) states “If, before the expiry of either of the limitation periods that, under this Act, apply to a claim, a person acknowledges liability in respect of the claim, the claim must not be considered to have been discovered on any day earlier than the day on which the acknowledgement is made.”

Acknowledgement under s .24 includes a debtor’s performance of an obligation under or in respect of a security agreement (s. 24(8)).  In other words, for a conventional mortgage where there are specified payments, when the mortgagor under a mortgage makes a payment after their initial default this will postpone the date of discovery to the date on which the mortgagor made the after default payment.

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Is a Tent City Allowed?

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Tent Cities have been popping up in British Columbia, some in large urban areas such as Victoria and Vancouver and others in smaller communities such as Abbotsford and Nanaimo.  Advocates of these tent cities state that tent cities act as a community for homeless people providing enhanced safety and a sense of belonging.  How have the BC Courts treated these tent cities?

In British Columbia v Adamson, 2016 BCSC 584 the application for removal of the tent city by interim injunction failed.  The Province applied unsuccessfully for the removal of the tent city which was located on Victoria Courthouse property.  The Court determined that the Province failed to meet the test for granting an interim injunction which is laid out in RJR MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311.  The test in which all elements have to be passed is as follows:

  1. Has the applicant demonstrated that there is a fair question to be tried;
  2. Will the applicant suffer irreparable harm if the injunction is not granted; and
  3. Does the balance of convenience favour granting the injunction?

The Court found that there was a fair question to be tried but the Province did not fully demonstrate they would suffer irreparable harm nor did the balance of convenience weigh in favour of the Province.

The court based its decision on a great deal of evidence which demonstrated this particular tent city to be a safe-haven for the homeless that were living there.  The evidence proffered described the tent city as a community with rules and governance.

A second application was heard for an interim injunction on the Victoria Courthouse tent city.  The Court’s decision on this second application is recorded as British Columbia v. Adamson, 2016 BCSC 1245.  In this application the Province was successful.  The Court based its decision on the changes occurring in and around the tent city.  The tent city governance had fallen apart as well concerns began to crystalize relating to the health and safety of the surrounding community.  The Court ordered that the tent city residents were to vacate the premises as soon as additional housing from the Province became available.

In another British Columbia Court decision Vancouver (City) v. Wallstam,

2017 BCSC 937 an application for an interim injunction to dismantle a tent city was heard.  Again, the RJR MacDonald test was used.  The Court determined that the applicant City was unable to prove that irreparable harm would be suffered.  The evidence spoke similarly to Adamson in that this tent city was a safe-haven for the homeless.  The tent city was vital in maintaining the homeless people’s security of the person.

The decisions mentioned above support the view that only once a tent city begins to negatively impact the surrounding community will an interim injunction be granted.  As long as the tent city remains a civilized community, they are allowed to stay.  The availability of alternative housing is another factor that the Courts have considered in allowing or disallowing the injunctions to dismantle a tent city.

From these decisions there is much left unclear about the public’s rights in relation to these tent cities.  Perhaps future decisions will tender a new legal test to be applied in these tent-city circumstances.

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