Certificates of Pending Litigation (CPLs) are instruments that get registered on title to real property which effectively preclude an owner of a property from placing other charges on title or otherwise selling or transferring any interest in a property. Under s. 215 of the Land Title Act a CPL can be registered where a party has commenced or is a party to litigation and where that party is either (a) claiming an estate or interest in land or (b) has a statutory right to a CPL.

CPLs are powerful tools for securing claims pending the outcome of litigation. They are also instruments of draconian relief that significantly encumber a property and, as such, are subject to scrutiny as to whether they are properly registered and maintained.

A recent example of the strategic use of a CPL to secure a claim and the scrutiny applied to CPLs can be found in Vidcom Communications Ltd. v Rattan, 2022 BCSC 562 (CanLII).

In Vidcom Communications Ltd. v Rattan the Defendant was accused on fraudulently obtaining about $2,000,000 from her employer, the Plaintiff, and which funds were alleged to, among other things, purchase and improve a property in Vancouver.

To secure its claims and on the basis that the Defendant’s Vancouver property was acquired and improved with fraudulently obtained funds, the Plaintiff registered as CPL against the property. The Defendant brought an application to discharge the CPL arguing that the Notice of Civil Claim (the court filing commencing a Supreme Court action) failed to properly claim an interest in land and, as such, the requirements of s. 215 of the Land Title Act were not made out.

The Court first reviewed the applicable test for cancellation of the CPL. The test required the Court to review whether the Notice of Civil Claim disclosed a proprietary interest in the property. If the Notice of Civil Claim made such a disclosure, the CPL could be maintained. If not, the CPL would be cancelled. The Notice of Civil Claim was not to be given a broad interpretation; rather, the claim would have to stand on its own and be scrutinized as to whether it pled a basis for maintaining a CPL.

In its analysis, the Court first held that the alleged conduct fell within traditional categories of trusts long recognized to arise from the Defendant’s wrongful acts. More particularly, that a trust will arise in respect of funds wrongfully obtained by employees from their employers because of an employee abusing their position. Put another way, funds wrongfully acquired because of a breach of fiduciary obligation or duty of loyalty are deemed to be held in trust for the party from whom the funds were wrongfully taken.

The Court found that the alleged conduct in question did give rise to a trust immediately upon any funds being wrongfully taken. The Court also found that there was a sufficiently pled claims of a substantive constructive trust even if not stated in such clear words. The Court held that the claims made for a tracing of misappropriated funds would include a claim to trace those funds as they concerned the acquisition and improvement of the subject property.

In the result, the Court held that the CPL was valid given that a valid interest in property was pled and dismissed the Defendant’s application to discharge the CPL from title to her property.

Vidcom Communications Ltd. v Rattan is a good example of how the court will strictly apply the requirements of s. 215 to scrutinize whether a CPL may be maintained but that the Court is not so rigid and dogmatic that a claim is required to be perfectly expressed for a CPL to be maintained. The case is also a reminder that if funds are stolen or misappropriated, that a CPL can be a powerful instrument to ensure that a significant potential source of recovery, namely the future sale of real property, is preserved pending the outcome of litigation.