A Certificate of Pending Litigation (CPL for short) is an encumbrance on title often registered by an party with an interest to warn the public that the property is subject to litigation.
Registering a CPL should have the effect of preventing all dealings with the property (sale, mortgage, financing, etc.) while the litigation is pending. Once the dispute is resolved, the CPL can then be discharged from the property.
When determining whether to grant a CPL, a court will first determine:
1) If there is a triable issue affecting an interest to the property. If this threshold is met, then 2) The court will consider if granting a CPL is an equitable relief based on a number of factors, including, but not limited to:
- Whether the plaintiff is a shell corporation;
- Whether the land is unique;
- The intent of the parties in acquiring the land;
- Whether there is an alternative claim for damages;
- The ease or difficulty in calculating damages;
- Whether damages would be a satisfactory remedy;
- The presence or absence of a willing purchaser;
- The harm to each party if the CPL is or is not removed with or without security;
- Whether the interests of the party seeking the CPL can be adequately protected by another form of security; and
- Whether the moving party has prosecuted the proceeding with reasonable diligence.
Two recent decisions from the Ontario Superior Court have reaffirmed the above-mentioned factors a court will consider when determining if a court order for a CPL will be granted.
Pacione v. Pacione, 2019 ONSC 813
In Pacione v. Pacione, 2019 ONSC 813, Robert Pacione loaned $250,000 to his brother, Mario Pacione, pursuant to a promissory note signed by the both of them. The note stated that the loan must be repaid by Mario within 90 days. If Mario didn’t repay the loan within that time, the note stipulated that Mario would authorize a third mortgage against the property in dispute. The note further stated that the property was owned by a numbered corporation, where Mario purportedly acted as the sole principal.
Mario did not pay back the loan and no mortgage was placed on the property because it turned out that Mario was not a director or officer of the corporation the time that the promissory note was executed.
Using the test above, Justice Conlan observed that the test for a CPL was most certainly met in this case. The note had 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 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). Notably, the court also stated that while Mario had no legal authority to bind the corporation company and the property in question, this fact did not defeat Robert’s interest in the property, as there was no way Robert could have known Mario lacked this authority. As the court stated, Mario could not be allowed to benefit from his own misrepresentation, which was yet another reason why this form of equitable relief was appropriate.
Bains v. Khatri, 2019 ONSC 1401
Conversely, in Bains v. Khatri, 2019 ONSC 1401, the court declined to issue a CPL on the grounds that other remedies were available. In Bains, the Plaintiff alleged that he jointly purchased the property with the defendant as an investment, but the title of the property only included the Defendant’s name so investors could benefit from the Defendant’s status as a first time home buyer. The Defendant then denied that the property was purchased jointly, stating he bought it for personal use, not as an investment.
In this case, the first part of the test was met, as the Court determined that the Plaintiff did have an interest in the property, but the factors in the second test weighed against granting the CPL. Namely, there was no evidence that the property was unique to the Plaintiff because he 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 Plaintiff was concerned about the disposition of assets, they could seek an injunctive relief. The Court stressed that the purpose of CPLs are to protect interests in land where other remedies would be futile.
