A Certificate of Pending Litigation is a document that can be filed against a property stating that a piece of land is subject to litigation and that title to the property is subject to a dispute. A Certificate of Pending Litigation can be used to protect a creditor’s interest in a debtor’s property. Third parties may seek to register a Certificate of Pending Litigation against a matrimonial home, which can impair both spouses. In other cases, such as during a divorce, one party may try to secure equalization and support amounts owing by filing a Certificate of Pending Litigation on the other party’s property. In these cases, courts try to balance the interests of the different parties involved.
Creditor Seeks to Register Certificate of Pending Litigation Against Matrimonial Home
The case of Szymanski v. Lozinski dealt with whether a creditor could obtain a Certificate of Pending Litigation for a matrimonial home that the creditor did not have an interest in but could have been transferred in an effort to defeat the creditor’s recovery. In 2015, the husband transferred the title to the matrimonial home to his wife without any transfer of funds. He later obtained a loan from the plaintiff, and when the husband failed to repay the loan, the plaintiff issued a statement of claim seeking repayment of the loan. The plaintiff also sought the Court’s leave to register a Certificate of Pending Litigation against the matrimonial home.
In Gifford v. Fielding, the Court addressed a dispute where a party sought to obtain a Certificate of Pending Litigation prior to judgment while also holding no interest in the land, except as a result of alleging a fraudulent conveyance. In that case, the Court set out a three-part test requiring that:
- the party seeking a Certificate of Pending Litigation must satisfy the Court that there is a high probability that they would succeed in the main action;
- the claimant must have evidence demonstrating that the transfer was made with the intent to defeat creditors, with evidence establishing that the transfer occurred below fair market value lessening the claimant’s burden; and
- the claimant must be able to show that the balance of convenience favours the issuing of the Certificate of Pending Litigation based on the specific circumstances of the case.
Claimants Must Demonstrate “Badges of Fraud” are Present
Underlying the Grefford v. Fielding test is the finding that merely alleging a fraudulent conveyance is insufficient to warrant awarding a Certificate of Pending Litigation. Instead, the claimant must meet the second limb of the test by demonstrating that “badges of fraud” are present. By inference, this can suggest the transaction was made to defeat creditors.
In Szymanski v. Lozinski, the transfer of the home was for less than market value. However, more was needed for the claimant to meet his burden under the test. As the husband explained, the purpose of the transfer was to remortgage the property; however, due to his recent bankruptcy, it was preferable for his wife to be the borrower. The balance of convenience also favoured the husband and wife.
The judge acknowledged that while a Certificate of Pending Litigation gives non-parties notice of the claim, its actual effect is significantly greater, as it “prevents the owner from exercising the most important incidents of ownership.” Here, a Certificate of Pending Litigation would be detrimental to the wife as she had nothing to do with the loan and would be at risk of the claimant encumbering her home. Against this, the claimant’s prejudice was substantially less. While he would not have the security of the house as an asset to collect upon, he would merely be in the same position as other claimants looking to collect on a loan.
A Fraudulent Conveyance Brings Title to Land into Question
In some circumstances, a spouse may seek a Certificate of Pending Litigation to protect their ability to recover equalization and support amounts owed by their former spouse. In Fewson v. Bansavatar et al., the parties jointly owned an investment property. Following their separation, the wife transferred her share of the property. Within six months, her former husband transferred 99% of his interest in the property to his parents for the sum of $2.00, which the wife argued was a fraudulent conveyance. Additionally, the husband was in arrears of his child support payments, and other than the property, he had no assets of significant value.
Courts have found that a party seeking to set aside a fraudulent conveyance is an action where an interest in land will be brought into question. The Fraudulent Conveyances Act provides that “every conveyance of real or personal property … made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void.” Justice Himel noted that in this context “creditor” encompassed those who may not have been a creditor at the time of the conveyance, but may become one in the future.
Husband Claims Transfer of Property was to Satisfy Outstanding Debts to Parents
Justice Himel also looked at the test for a Certificate of Pending Litigation when a fraudulent conveyance is alleged, as set out in Grefford v. Fielding. In the matrimonial litigation, the wife sought retroactive and ongoing child support and also claimed that the husband had underpaid his support payment. Based on the husband’s employment history, evidence indicated that a court might impute a higher income to him such that significant child support could be owed. The Court found the wife had a high probability of success in the matrimonial action.
For the second part of the test, the wife claimed the property had received third-party offers of $1,200,000, and the husband’s transfer to his parents was for significantly less than market value. She argued the transfer was done to defeat her ability to recover money that would be owed to her. While the husband indicated he had significant debts owing to his parents, he made inconsistent statements about the existence, timing, and quantum of the debts.
Justice Himel identified a number of “badges of fraud” that were present, suggesting the husband may have intended to defraud the applicant when the property was transferred, specifically that:
- The husband continued to live at the property rent-free;
- The transfer was made in the face of ongoing legal proceedings;
- The amount paid was grossly inadequate;
- There was unusual haste in making the transfer as the transfer took place only six months after the applicant transferred her interest in the property and four months before the motion to vary child support; and
- A close relationship existed between the parties to the conveyance.
The wife provided substantial evidence of a fraudulent intention and satisfied the test for obtaining a Certificate of Pending Litigation. On the other hand, there was no evidence the husband would be prejudiced if a Certificate of Pending Litigation was granted. However, due to the challenges the wife would face when collecting any payment ordered from the husband, the balance of convenience favoured granting the Certificate of Pending Litigation on the property.
Wife Requests Certificate of Pending Litigation to Protect Assets for Equalization Claim
In Lu v. Lu, the wife argued that her entitlement to an equalization payment should be protected by a Certificate of Pending Litigation. While she was married to her husband, she claimed that a $100,000 investment was made into an investment property by refinancing their matrimonial home. The title to the property was subsequently transferred, but the wife alleged that the husband remained the true owner of the property. The wife argued that a Certificate of Pending Litigation was necessary as she believed the husband was hiding assets in the property; further, a Certificate of Pending Litigation would prevent the depletion of assets that had to be settled through their divorce proceedings.
The Court referred to the case of Chilian v. Augdome Corp., in which the Court found that an interest in the land in question did not need to be directly claimed by the applicant to be entitled to a Certificate of Pending Litigation as long as an interest in the land is otherwise in question. In Lu v. Lu, there was also a claim for equalization. However, Justice Christie was not convinced that there was anything fraudulent about the purchase of the investment property, and no evidence the respondent remained the property owner.
Certificate of Pending Litigation Denied; Sufficient Assets Available to Satisfy Equalization Payment
The wife was unable to demonstrate an interest in the property. The $100,000 investment was the extent of her interest in the property, which was valued at several million dollars. That did not justify a Certificate being placed on the property. She also failed to establish that she was owed an equalization payment. Although, in any case, other significant assets could satisfy any amount that may be owed to her. Further, because the husband worked as a real estate agent, there would be significant prejudice to the respondent if the Certificate of Pending Litigation was placed on the property, as this could be detrimental to his future business. Aside from securing money that could be available for any payment, there was nothing unique about the property. Therefore, the wife’s request for a Certificate of Pending Litigation was unsuccessful.
Certificate of Pending Litigation May Guard Against Fraudulent Transfers
Courts will consider a range of factors when determining whether to issue a Certificate of Pending Litigation. However, when a fraudulent conveyance is alleged, there must be evidence that the intention of the transfer was fraudulent. Courts may be cautious about encumbering a matrimonial home when an innocent spouse’s home may be impaired. However, issuing a Certificate of Pending Litigation may be appropriate when one spouse faces clear challenges enforcing an equalization payment.
Contact the Windsor Family Lawyers at Howie Johnson Barristers & Solicitors for Assistance with Property Claims and Asset Division
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