An Interest in Land: Where the Court grants a Certificate of Pending Litigation beyond the Fraudulent Conveyance Action

A Certificate of Pending Litigation (“CPL”) is an extraordinary remedy where title to land, or an interest in land, is put into question, and the party asking for it must show a triable issue as to a direct interest in the real property in question. If a CPL is obtained, it is registered against the real property, to prevent that real property from being transferred or encumbered.

It is well established in case law that a party’s action to declare a transfer of land as a fraudulent conveyance puts into question that party’s “interest” in that land, which allows that party to ask the court for a CPL to be registered on that land.

But what if the creditor’s action is not based on a claim of fraudulent conveyance? In Bank of Montreal v. 2655172 Ontario Inc. et al., Justice Dietrich confirmed that another instance where an interest in land might be put into question is where a claim is grounded in:

1. A claim for a constructive trust over real property; and
2. A claim for the right to trace funds in respect of real property.

In that case, on a motion brought before the Commercial List of the Ontario Superior Court of Justice in Toronto, SZK’s Jakob Bogacki successfully argued that Bank of Montreal (“BMO”) should be granted permission to register a CPL on a property because there were a triable issues that: BMO’s monies were misappropriated through a fraudulent scheme; those monies could be traced to the property in question because they were used to pay out a mortgage on that property; and, therefore, that property is subject to a constructive trust in favour of BMO.

Her Honour’s Endorsement is significant: it applies the CPL remedy in the context of a fraud where the misappropriated monies could be traced to a property, even though BMO otherwise had no ownership rights or registered charges over that property. As a result, BMO has an opportunity to pursue the recipients of those misappropriated monies for their return, while also protecting the property from being transferred or further encumbered before the action is determined in its merits.

This decision highlights the expanded availability of CPLs beyond conventional real estate disputes or fraudulent conveyance actions. Where a plaintiff can trace allegedly misappropriated funds into real property, including through the discharge of a mortgage, and advance a constructive trust claim, a CPL may serve as an important remedial tool to preserve the property while the litigation is ongoing.

Written by: Muskan Balagan