In the case of Environmental Waterproofing Inc v. Huron Tract Holdings Inc., [2023] O.J. No. 157, the court was tasked with determining which creditor had priority over a garnishment of funds held by the Sheriff. Environmental Waterproofing Inc. (“Environmental”) had obtained a judgment against Huron Tract Holdings Inc. (“Huron”) and sought to enforce that judgment through garnishment proceedings. However, Libro Credit Union (“Libro”) also had a security interest in the assets of Huron and argued that its security interest took priority over Environmental’s claim as an execution creditor.
One matter the court had to determine was whether the Limitations Act, 2002 or the Real Property Limitations Act (RPLA) applied to the case. Environmental argued that the two-year Limitations Act, 2002 applied to its claim, while Libro argued that the ten-year limitation period under the RPLA applied. Subsection 2(1)(a) of the Limitations Act, 2002 provides that the Limitations Act, 2002 does not apply to proceedings to which the RPLA applies. The RPLA applies to actions about claims involving real property.
The court looked to recent case law such as Beniuk v. Leamington (Municipality) (2020 ONCA 238) to determine the types of cases in which the RPLA is intended to apply. The court noted that actions for damages are not encompassed by the RPLA. The court also emphasized that the incidental involvement of land or real property in an action does not mean that the RPLA applies. The court concluded that the RPLA does not apply to this case as it was not an action to recover land, but rather a claim for an unpaid debt.
The court also had to determine whether Libro’s security interest took priority over Environmental’s claim as an execution creditor. The court found that Libro had a perfected security interest with respect to the Debenture and as such, its claim takes priority over Environmental’s claim as an execution creditor. The court also found that Libro’s claim was not barred by any applicable limitation period.
The court also considered Environmental’s argument that the garnishment scheme created by rule 60.08 of the Rules of Civil Procedure, and the Creditors’ Relief Act, 2010, S.O. 2010, c. 16, Sch 4 (as amended) which sets out the process by which execution creditors’ claims are proportionately paid out by the sheriff upon garnishment proceedings being conducted, should be applied in an equitable manner. The court noted that while the rule should be applied in an equitable manner, it does not alter the priorities between creditors, particularly secured creditors.
In the end, the court determined that Libro’s perfected security interest had priority over Environmental’s garnishment and ordered that the funds currently being held by the Sheriff shall be paid to Libro pursuant to its perfected security interest. This case serves as an important reminder of the importance of perfecting a security interest and the priority that such a perfected security interest holds over other claims, including those of execution creditors.
