September 21, 2020

A certificate of pending litigation (commonly referred to as “CPL”) provides notice that a legal proceeding has been commenced questioning the owner’s interest in land. In order to be effective, a CPL must be issued by a court and registered on title to the land in dispute. Once it has been registered on title, a CPL cannot be removed without a further court order or the written consent of the person who registered the CPL.

A CPL does not provide the party who obtained the CPL with any substantive rights in the property. Rather, it creates an effective “freeze” of the property until the parties’ rights to the land is determined in the course of the litigation. A CPL makes it difficult for the registered owner of land to sell the property or register a mortgage, for example, and may even put existing financing secured against the property in jeopardy. For this reason, a CPL is generally obtained at the outset of litigation and discharged at the end.

The decision of Master Sugunasiri in Ram Dinary Inc. v Dai et al., 2020 ONSC 4846 sets out the test for obtaining a CPL and provides a useful illustration of when a CPL will or will not be granted. In that case, two developers were interested in the same plot of land on Royal York Road in Toronto. The first developer, RDI, spent nearly a year negotiating with the owner to purchase the property. In anticipation that the sale would go through, RDI created a development proposal to attract investors. RDI shared the development proposal with Dai and Xue, although they eventually declined to invest in the proposed project.

In late 2018, the proposed sale of the property to RDI fell through. Shortly thereafter, Dai and Xue purchased the property and began relying on the development proposal prepared by RDI to attract investors of their own. When RDI discovered that its development plan was being used by Dai and Xue, it sued them for damages for breach of contract, breach of confidence, unjust enrichment, and a declaration of a constructive trust over the property. RDI also sought a CPL.

In reaching his decision on whether to grant the CPL, Master Sugunasiri set out the three part test:

  1. The originating process must seek a CPL as a form of relief and describe the land in sufficient detail that the CPL may be registered on title;
  2. The proceeding must establish that an interest in land is in question and demonstrate that a reasonable claim exists; and
  3. The court, in its discretion, must determine that a CPL is appropriate.

There was no question that the first branch of the test was met in this case. With regards to the second, Master Sugunasiri acknowledged that the bar is low – it will be satisfied as long as a party is able to demonstrate that there is a triable issue regarding an interest in land. In this case, RDI sought a constructive trust, which, if established, would give them an interest in the property. Without deciding the issue, the court found that RDI’s record showed a reasonable basis for the claim (i.e. the claim was not frivolous). As a result, this branch of the test was also met.

In deciding the third branch of the test, the court confirmed that each case must be determined on its own facts. However, several factors were laid out in 572383 Ontario Inc. v Dhunna (1987), 24 CPC (2d) 287, [1987] O.J. No. 1073, 1987 CarswellOnt 551 (ON SCJ) which help guide the exercise of the court’s discretion. Those factors are:

  1. Whether the plaintiff is a shell corporation. (Not application in this case.)
  2. Whether the land is unique. (The court held that RDI had not established that the Royal York property was unique in this case.)
  3. The intent of the parties in acquiring the land. (Both RDI and Dai and Xue sought to develop the land, making it a neutral factor in this case.)
  4. Whether there is an alternative claim for damages. (Yes: RDI also sought damages, i.e. money, from Dai and Xue.)
  5. The ease or difficulty of calculating damages. (The court held that damages could be calculated in this case.)
  6. Whether damages would be a satisfactory remedy. (Yes, since RDI was a developer whose interest was in profit, not the land itself.)
  7. The presence, or absence, of another willing purchaser. (Not application in this case.)
  8. The harm to each party.

With regards to harm, the court held that RDI suffered no harm if the CPL was denied – RDI remained in the same position as when the vendor initially terminated its sales agreement with RDI in late 2018. However, Dai and Xue would suffer clear harm if the CPL was ordered – it would effectively stop their ability to develop the land. For these reasons, the court declined to order a CPL.

As mentioned above, a CPL is a tool used to preserve a property pending the outcome of a court proceeding. RDI’s failure to obtain the CPL in this case does not hinder its ability to argue that it has an interest in the land – RDI’s claims for unjust enrichment and constructive trust have yet to be determined. In the meantime, because the CPL was not ordered, Dai and Xue are free to move forward with the development of the land.