“Section 103 of the Courts of Justice Act governs the issuance of CPLs. It provides:
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 under subsection (2).
The courts have long held that an action to set aside a fraudulent conveyance is an action in which an interest in land is brought into question: United States (Securities & Exchange Commission) v. Boock, 2010 ONSC 2340, para 9 cited in Wong v. Smith, 2017 ONSC 2721, para 16: 2017 ONSC 2721 (CanLII) Wong v. Smith | CanLII.
The Fraudulent Conveyances Act, s. 2 states:
Every conveyance of real or personal property and every bond, suit, judgment and execution heretofore or hereafter 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 as against such other persons and their assigns.
The term, “creditor or others” is broad enough to contemplate a person who, while not a creditor at the time of the conveyance, may become one in the future. If the transferor had the intention to defraud when the conveyance was made, it does not matter whether it was to defeat present or future creditors: Miller v. Debartolo-Taylor, 2015 ONSC 2654, para 4(e) and (f): 2015 ONSC 2654; Miller v. Debartolo-Taylor | CanLII; Indoco Building Corp. v. Sloan, 2014 ONSC 4018, para 48; and Beynon v. Beynon, 2001 CanLII 28147 (ON SC), [2001] O.J. No. 3653 at para. 51 (SCJ): 2001 CanLII 28147 (ON SC) Beynon v. Beynon | CanLII.
As explained by Smith J. in the Grefford v. Fielding decision:
The laws of Ontario do not prevent a defendant from continuing to deal with his or her assets after a claim has been made and before judgment is obtained. A defendant to any claim is permitted to sell any interest he or she may have in land. In order to obtain a CPL in an action alleging a fraudulent conveyance of land, before the claimant in the main action has obtained a judgment, where no interest in land is claimed in the main action, requires special circumstances to fairly balance the interest of both parties.
Jodi L. Feldman v. Foulidis confirms the test for a CPL in the context of a claim of fraudulent conveyance. The Court determined that the Plaintiff (the Defendant’s prior family law counsel) met the test for a CPL on the Defendant’s home. The Plaintiff claimed that the Defendant owed her the sum of $664,323 on account of unpaid invoices. The CPL motion was brought after the Defendant registered a mortgage, in the amount of $525,000, against title to her property. That mortgage was by the Defendant, in favour of her brother-in-law, shortly after being served the Statement of Claim. Diamond J. held as follows:
The Test for a CPL
Traditionally, when a fraudulent conveyance is alleged, title to a property is brought into question. In Keeton v. Cain 1986 CanLII 2854 (ONSC), Justice Scott held that a creditor need not have a personal interest in a property, but merely “need to claim title”. As long as there are more than bare allegations supporting a fraudulent conveyance, a sufficiently reasonable claim to an interest in land will exist and warrant the issuance of a CPL.
The jurisprudence has since adapted to situations like the one before the Master, namely where a plaintiff is not yet a judgment creditor of the defendant who has alleged to have participated in a fraudulent conveyance. Where a plaintiff has yet to obtain judgment in the underlying/main action, the test for a CPL is set out in the decision of Justice Smith in Grefford v. Fielding 2004 CanLII 8709 (ONSC):
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?
As held by Justice Sachs in Claireville Holdings Ltd. v. Votiuk 2015 ONSC 694 (CanLII), the Grefford test “applies when the plaintiff has not yet obtained judgment in the underlying action.”