A certificate of pending litigation (CPL) is a useful tool used by parties when there is a dispute regarding real property. If granted, a CPL is registered against the title to the property, thereby letting anyone interested in it know that there is a legal proceeding attached to the property. A CPL for example acts to prevent the property from being sold, or mortgaged, pending resolution of the issue.
Two recent decisions of the Ontario Superior Court have provided guidance regarding the circumstances in which the courts may grant a CPL. Even if a party can establish an interest in the property, that alone will not be sufficient to obtain a CPL. The court will also take a look at other applicable factors, such as the uniqueness of the property, and whether all other avenues have been exhausted.
In Pacione v. Pacione, 2019 ONSC 813 (“Pacione”), the Plaintiff, Robert, loaned his brother Mario $250,000, subject to a Promissory Note. The Promissory Note stated that if Mario failed to make payments on the loan, Mario would authorize and consent to a mortgage against a property held by an Ontario numbered corporation “188”, of which the Promissory Note stated that Mario was the sole principal.
Mario did not pay back the loan, nor did he place a mortgage on the property. Further, Mario was not in fact a director or officer of 188 when the Promissory Note was executed.
Justice Conlan observed that the test for a CPL was most certainly met in this case and commented that it was not a close call. The Promissory Note by itself established that Robert had a reasonable claim to an interest in the property. The fact that Robert had also requested monetary damages was no bar to the success of the motion for the CPL because otherwise no mortgage holder who sues the debtor could ever obtain a CPL.
The Court also recognized that any prejudice to Mario (and his other brother Luciano) had to surrender to the very significant prejudice to Robert if the CPL was not registered (which would likely mean he would lose $250,000).
Conversely, in Bains v. Khatri, 2019 ONSC 1401 (“Bains”), the Court refused to grant a CPL on the ground that other remedies were available. In Bains, the Plaintiffs claimed that they jointly purchased a property as an investment along with the Defendant, but the Defendant made the offer solely in his name to allow the investors to benefit from his status as a first time home buyer. However, the Defendant alleged that he was the sole purchaser of the property, which he bought to be his personal residence and not as an investment.
Justice Doi held that the Plaintiffs had established that they had an interest in the subject property and had demonstrated a triable issue on that point. However, other factors weighed against granting the CPL. Namely, there was no evidence that the property was unique to the Plaintiffs because they purchased it as an investment, as opposed to a home. Damages could therefore be easily calculated and would offer an adequate remedy, as opposed to a CPL. Moreover, the Defendant was an employed individual and not a shell corporation, and damages could therefore be sought and recovered against him.
It was also held that if the Plaintiffs were concerned about the disposition of assets, they could have sought injunctive relief. The Court emphasized that CPLs are intended only to protect interests in land where other remedies would be ineffective, which was not the case in Bains.
These two cases provide insight into when courts will exercise their discretion to grant a CPL. In both cases, the Court was satisfied that the threshold was met for a triable issue with respect to the moving party’s claim to an interest in the property. However, this factor alone was not sufficient to grant the remedy.
In both cases, the plaintiff(s) requested damages along with their motion for a CPL. This was not enough to defeat the CPL in Pacione because damages alone would have been insufficient. Critically, the Court recognized that the corporation could simply dispose of all of its assets to its other creditors and effectively render itself immune to judgment. Thus, a CPL was the only effective remedy.
Conversely, in the Bains case, the applicable factors weighed against the granting of a CPL. In particular, the Court emphasized that the Plaintiffs had other means available to protect their investment. The availability of other effective remedies made a CPL unsuitable.
These decisions serve as a valuable reminder that a mere interest in land is not enough to secure a CPL on a property. The other applicable factors should be kept in mind when attempting to obtain a CPL. In particular, if a party’s interest in a property can be sufficiently protected through a damages claim, the court may be reluctant to grant the remedy.
Co-Author: Daniel Waldman, Lawyer