Legal Blog

CPL (2)

A certificate of pending litigation (CPL) is a notice registered against title to property informing the world that title to this property is in issue. Any purchaser or mortgagee who then deals with the property does so at its peril. An action to set aside a mortgage or a transfer of land under the Fraudulent Conveyances Act (Act) is often joined with a motion for the issuance of a certificate of pending litigation. After all, what good will it do to bring an action to set aside a transfer if, just before trial, the fraudsters simply re-transfer the property to another person complicit in the fraud or, worse yet, sell or mortgage the property to arm’s length third parties.

A CPL may be obtained on motion without notice (Rule 42.01 of the Rules of Civil Procedure) and, if there is an apparent claim for an interest in land, it is not overly difficult to obtain a CPL. The real fight ensues when the property owner is notified, as required by the Rules, that the land has now been bound by the CPL. Such was the case in Nedaneg Financial Corporation v. Talebzadeh, a 2025 decision of the Ontario Superior Court of Justice. In Nedaneg, however, the plaintiff brought its motion on notice to the defendants.

The Debt

Husband was in default of his obligations to a mortgagee. After husband was unable to sell the mortgaged property, he and mortgagee entered into minutes of settlement for a consent judgment of $3.7 million and husband gave mortgagee possession of the mortgaged property. Mortgagee sold the property, but there was a deficiency of $540,000.

All may have been well for husband, other than the fact that he was a judgment debtor, but he discovered that his credit report noted the original $3.7 million judgment rather than the final amount of $540,000 after the sale of the mortgaged property. He had his lawyer enquire and his lawyer informed mortgagee’s lawyer that husband “was working on a number of transactions” and the credit report was “causing him problems with financing that he was trying to obtain on these transactions.” Mortgagee’s lawyer wrote a letter memorialising their conversation and, in response, husband’s lawyer confirmed that husband wanted to get back into the game and that this “may” consist of both purchases and refinancing transactions.

Alarm bells went off for mortgagee, who suspected that husband might be moving assets that could otherwise be used to pay the judgment debt. After some investigation, mortgagee discovered that husband’s wife and son, as well as a non-arm’s length corporation, had purchased additional development properties after the judgment. Mortgagee arranged for an examination in aid of execution, but husband refused to attend.

Mortgagee commenced an action against the titled parties (i) alleging that husband was the beneficial owner of various properties regardless that the others held title to the properties and (ii) claiming a fraudulent conveyance under the Act. Mortgagee then brought a motion for a CPL.

The associate judge dismissed the motion on the basis that the equities and balance of convenience did not favour granting the CPL. Mortgagee appealed.

Test

Mortgagee argued that, in a fraudulent conveyance action, the moving party need only show that it has a prima facie case that a fraudulent conveyance has taken place. The judge agreed with husband that equitable factors and balance of convenience still apply. However, in analysing the equitable factors, a motion judge must look at all relevant matters including evidence of the fraud. This, it seems, the associate judge did not do. She considered the equities and the balance of convenience in a vacuum without analysing the evidence that mortgagee had raised in support of its argument that there was a prima facie case of fraud. The appeal judge stated:

“Because she did not conduct the analysis, the Associate Judge failed to note that the constellation of facts here are typical of the kinds of machinations that debtors pursue to avoid paying a judgment, using layers of different entities and related individuals and corporations to shield them from judgement creditors while they continue to do business.”

We rather like that quotation because it demonstrates that judges are alive to the fact that some debtors simply do not want to pay and will do whatever is needed to ensure that they do not have to pay – but still carry on as if there were no debt at all.

Evidence

The appeal judge noted that there was a large body of evidence to support mortgagee’s position. As examples:

• Various mortgagees who held mortgages against lands purchased after the judgment said that (i) they dealt with husband only and that he told them he was the beneficial owner of the mortgaged lands, (ii) husband made the monthly payments on the mortgages, (iii) when one property was sold, husband advised the mortgagee that the mortgage should be ported to another property that another of the defendants owned.
• One of the titled owners had little recall about the purchase of the property or the construction of the residence on it.
• Husband was shown as the president of two corporations involved in the agreement to purchase a property, although title was taken in the name of yet another corporation. A CRA filing showed that husband was a 50% shareholder of that corporation.
• Husband entered into an oral agreement with his wife giving her full control of the family business and finances and giving his son any real estate commission he would earn.
• Husband refused to produce records of various corporations, including the minute books.

Prima Facie Fraud

The appeal judge had little problem in concluding that mortgagee had satisfied the first part of the test for granting a CPL. The fact that the properties were purchased in the name of husband’s wife, son, and a corporation did not mean that there was no “conveyance” that could be set aside under the Act. The definition of conveyance is very wide. It is broad enough to encompass an agreement with a non-arm’s length third party to purchase properties in trust for a debtor in order to defeat a creditor’s interests.

Equitable

The appeal judge stated:

“The usual equitable factors are commonly referred to as the “Dhunna Factors”. These factors typically include the following: 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 alternate 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; and the harm to each party if the CPL is not granted (the balance of convenience).”

but also commented that not all of the factors set out above will necessarily be relevant in a case like this. She analysed the relevant factors as follows:

• Damages would not be an adequate remedy; husband had already refused to pay money owed.
• The properties were not unique.
• Delay was relevant but husband always took the position that he had no assets and it would have made no difference had mortgagee taken steps to enforce the judgment sooner.
• Interest accrued on the judgment debt at 12% per year, but husband could raise any delay in the context of the litigation as a defence to the accrual of interest during any delay period.
• Mortgagee had registered two cautions that the Land Registrar ultimately deleted, but these registrations did not seem to cause difficulties to husband.
• Husband had made bald allegations of hardship due to a loss of financing – without providing tangible proof.

Upshot

The appeal judge allowed the appeal and granted mortgagee leave to register CPLs on the properties.

 

Image courtesy of SimaGhaffarzadeh.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.