A powerful tool in estates litigation is a Certificate of Pending Litigation (“CPL”), but what is a CPL and how does it work?

A CPL is a court-imposed notice that is registered on title and provides notice to the public that a property is subject to a legal dispute. The practical effect of a CPL is that it prevents anyone from dealing with the property (including selling or mortgaging it) until the certificate is discharged from title.

The process of obtaining and registering a CPL is governed by Rule 42 of the Rules of Civil Procedure (the “Rules”) and section 103 of the Courts of Justice Act (“CJA”).

Why seek a CPL?

There are several reasons why a CPL may be sought in estates litigation. These include:

• Allegations of fraudulent transfer of title: title to property may be transferred via fraudulent means, for no consideration and by a party who was incapable of doing so;
• To preserve the assets of an estate: a CPL is often used to preserve any estate assets from liquidation when there is an Estate dispute; or
• An equitable claim to an interest in land: a claimant may assert that the beneficial interest in land is theirs, arising out of a constructive trust, resulting trust or breach of a fiduciary duty and can seek a CPL to preserve their interest.

CPL process

A precondition of obtaining an order for a CPL is that it must be sought in an originating process (such as the initial statement of claim or notice of application).[1]

A party must then seek a motion to obtain the CPL. The Rules permit a CPL motion to be brought without informing the other party to the proceeding. This is known as an ex parte motion. The court requires an adequate reason for bringing an ex parte CPL motion, and this can include concerns of fraud, or the real belief that the defendant may damage or transfer the property upon notice. Use caution if commencing this type of proceeding without notice, notably the Estates List judges in Toronto generally do not look favourably upon ex parte motions for CPLs.

On the motion, the court will engage in a two-stage analysis to determine whether to grant an order for the issuance of a CPL.[2]

First, the court must determine whether the claimant has a triable interest in land. The threshold is a low one.[3] The claimant has to demonstrate that there is a triable issue, not whether their claim is likely to succeed.

Second, as it is an equitable remedy, the court has ultimate discretion in deciding whether to grant a CPL. In making their decision, the court will consider a non-exhaustive list of factors. The factors include:

(i) whether the land is unique;

(ii) the intent of the parties in acquiring the land;

(iii) whether there are alternative claims for damages;

(iv) the ease or difficulty in calculating damages;

(v) the presence or absence of a willing purchaser; and

(vi) the harm to each party if the CPL is or is not removed with or without security.[4]

How a CPL takes effect

If the court deem that a CPL is necessary, it will then issue an order which provides for the registering of a CPL.  A CPL can only be implemented by a court registrar. The registrar will register it on title and as a result, any parcel register searches of the property will show the existence of the CPL.

A prudent purchaser is not likely to buy a property with a CPL until it is discharged from title. If the property owner wished to mortgage the property, most banks and financial institutions would require that the CPL is removed.

Once registered on title, a CPL may only be removed on a motion to the court.[5] The analysis the court uses in a motion to discharge a CPL are the same used to grant one, as outlined above.[6]

In the event a CPL has been obtained without notice, the opposing party can move to have the CPL discharged. Section 103(6) of the CJA provides the court with a broad discretionary power:

103(6) The court may make an order discharging a certificate:

(a)  where the party at whose instance it was issued,

(i)  claims a sum of money in place of or as an alternative to the interest in the land claimed,

(ii)  does not have a reasonable claim to the interest in the land claimed, or

(iii)  does not prosecute the proceeding with reasonable diligence;

(b)  where the interests of the party at whose instance it was issued can be adequately protected by another form of security; or

(c)  on any other ground that is considered just, and the court may, in making the order, impose such terms as to the giving of security or otherwise as the court considers just.

If any of the above-noted circumstances apply, a court will issue an order for the removal of the CPL from title to the property.

Risks of seeking a CPL

The granting of a CPL is not without risk. Section 103(4) of the CJA provides that when a CPL is registered by a party without a reasonable claim to an interest in land, they are liable for any damages sustained as a result of its registration.

For instance, the registering of a CPL may sabotage the sale of a property, as the potential buyer is not likely to buy a property subject to litigation. In this instance, the injured party (the title holder) may be able to seek damages for the loss of proceeds from the sale. The title holder would be entitled to seek damages pursuant to section 103 of the CJA and the tort of inducing breach of contract.[7]

Summary

Obtaining a CPL is not a straightforward process and incurs some risk. As it is an equitable remedy, the issuing of a CPL is entirely up to the discretion of the court. However, the efficacy of a CPL in preserving assets from depletion or where there are concerns of fraud means it is a useful tool in estates litigation.

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[1] Rule 42.01(2)

[2] Rule 42.01; Perruzza v. Spatone, 2010 ONSC 841

[3] 2730453 Ontario Inc. v. 2380673 Ontario Inc., 2021 ONSC 6370 (CanLII) at para 7

[4] 1861067 Ontario Inc. v. Sang, 2021 ONSC 7226 at para 58

[5] Rule 42.02(1)

[6] Perruzza v. Spatone, 2010 ONSC 841 at paragraph 20

[7] G.P.I. Greenfield Pioneer Inc. v. Moore, 2002 CanLII 6832 (ON CA)