Legal Blog

CPL

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 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 land to another person complicit in the fraud or, worse yet, sell or mortgage the land to arm’s length third parties?

Sometimes, an action for payment of money will progress in the normal course until the plaintiff realises that the defendant has transferred her only asset to a non-arms’ length person. Does the plaintiff merely continue the action and deal with what seems to be a fraudulent conveyance after judgment or does the plaintiff move for a CPL. In Jodi L Feldman Professional Corporation v. Foulidis, a 2018 decision of the Ontario Superior Court of Justice, the plaintiff moved for the CPL.

Authorisation

Section 103 of the Courts of Justice Act authorises the issuance of a CPL. It states:

“The commencement of a proceeding in which an interest in land is in question is not notice of the proceeding to a person who is not a party until a certificate of pending litigation is issued by the court and the certificate is registered in the proper land registry office …”

The key words are “interest in land is in question.” A person cannot obtain a CPL merely on a whim. The claim has to relate to the very land for which a CPL is requested. For example, if one person is the title holder to land and another claims that the title holder actually holds title to the land in trust for the claimant, that would be an obvious situation in which an interest in that land is in question. A fraudulent conveyance scenario is another example.

Judgment

Like all statutes that give rights in a few words, the courts have fleshed out the words to add safeguards and further meaning to the rights. For example, just because a claimant commences an action claiming an ownership interest in land, which ostensibly is in the name of another, does not mean that the claimant has a right to tie up the land without some evidence to support the claim. Similarly, a person who does not even have a judgment debt against the land transferor, who may well have transferred title by way of a fraudulent conveyance, should not be able to tie up that land without evidence to demonstrate that the underlying action against the transferor is likely to result in a judgment.

If the plaintiff already has a judgment against a transferor of land, it is far easier to obtain a CPL against that land. The plaintiff has already proven a debt and now needs only to set out evidence of the fraudulent conveyance. Although the jurisprudence is somewhat convoluted, we suggest that the plaintiff need only produce evidence sufficient to take the claim beyond bare allegations of a fraudulent conveyance. For a non-frivolous claim, that is not difficult.

However, if the plaintiff is not yet a judgment creditor, the test is more onerous. The judge in Feldman set it out as follows:

“a) has the plaintiff satisfied the Court that there is a high probability that it will successfully recover judgment in the underlying/main action?

b) Has the plaintiff introduced evidence demonstrating that the impugned transaction was made with the intent to defeat or delay creditors?

c) has the plaintiff demonstrated that the balance of convenience favours the issuance of the CPL in the circumstances of the case?”

Claim

The plaintiff was the professional corporation of a family law lawyer who acted for the wife in a contested family law proceeding. The lawyer claimed that wife owed her $664,000 in legal fees. The lawyer sued for those fees in February 2018 and served the statement of claim on March 1, 2018. About three weeks later, wife granted a $525,000 mortgage to her former brother-in-law against her only asset, a house in Toronto. As soon as the lawyer got wind of the mortgage, she brought a motion to amend her statement of claim to seek a CPL and a declaration that the mortgage was void as being contrary to the Fraudulent Conveyances Act.

Tests

A Master initially heard the motion. He found as a fact that, although the lawyer would not necessarily obtain a judgment for the full amount she claimed, it was highly probable that she would obtain a judgment for a lesser amount. In effect, the lawyer satisfied the first test for a CPL.

The Master then dealt with the second test. In that regard the lawyer had set out various badges of fraud:

“(a) the inadequacy of the consideration for the mortgage, (b) the close relationship between Lynne (i.e. wife) and Danny (i.e. mortgagee), (c) the proximity and time between Lynne’s delivery of a Notice of Intent to Defend and the granting of the mortgage, (d) the fact that Lynne and Danny continued to have an involvement with each other after the mortgage was granted, and (e) the fact that the mortgage was allegedly security for ‘past consideration’.”

The Master weighed the evidence and, determined, even though he said it was a close call, that the evidentiary foundation was lacking and, for that reason alone and without the need to analyse the balance of convenience issue, dismissed the motion.

The lawyer appealed the decision to a single judge of the Superior Court of Justice.

Overturned

The judge held that the Master had made two errors. First, he assumed that the motion was equivalent to a summary judgment motion and that, therefore, he had authority to weigh the evidence. Second, he imported the high probability standard of the first test into the second test.

The judge held that a Master could not avail himself of the enhanced fact finding powers available to a judge on a summary judgment motion. The Master was not a judge and a motion to issue a CPL is not a summary judgment motion. The Master’s role was not to determine whether the lawyer set out sufficient evidence to demonstrate a probable fraudulent intent, but whether there was sufficient evidence merely to raise a triable issue. Since the Master stated that his determination was a close call on the improper higher standard, the lawyer had therefore proved a triable issue.

Once the lawyer satisfied the first two tests, the judge then had to analyse whether the balance of convenience favoured the issuance of the CPL. He found that it did. The lawyer’s services likely had a direct causal link to wife’s ability to preserve her equity in the land during the course of the family litigation, the land was wife’s only substantial asset, and the wife did not present any prejudice that she would encounter if the CPL were issued (e.g. problems with re-financing or sale).

This analysis, with which we agree, dovetails with our contention that, when a judgment debt already exists, the requirements to show an interest in land are not onerous.

 

Image courtesy of nitpix.

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