With real estate prices soaring, it’s no surprise that property is often at the heart of estate litigation. Certificates of pending litigation (CPLs) are a common tool used to ensure that a disputed property is not sold before the litigation is resolved. If the parties agree to remove a CPL so that the property may be sold, the agreement is generally contingent on holding the sale proceeds in trust pending the resolution of the litigation. That begs the question, how much of the sale proceeds should be held in trust as security? This was the question in Wosnack v Ficych, a recent BC Court of Appeal case where a foursome of stepsiblings – Kevin, Barry, Roger, and Sharon – got into it over their late stepfather Donald’s home.
In 2016, Donald transferred his interest in the property in question to himself and Kevin as joint tenants. After his death in 2017, title was transferred to Kevin under the right of survivorship. Kevin was appointed executor of Donald’s estate. The other stepsiblings each commenced an action contesting the gift, arguing that the property should form part of the estate, along with a number of other claims against Kevin as executor. Barry and Roger filed certificates of pending litigation (CPLs) against the property.
Kevin eventually accepted an offer to sell the property and moved to cancel the CPLs in order to complete the sale. Barry and Roger agreed to the cancellation on the condition that security be provided. Kevin agreed to provide security, but the stepsiblings disagreed on the amount. The chambers judge issued an order that the entire net sale proceeds from the sale should be held as security. Kevin appealed the decision, arguing that the security exceeded Barry and Roger’s collective interests in the property.
The Appellate Decision
The Court of Appeal agreed with Kevin and found that a CPL is intended to protect only valid claims in an interest in land. It follows that the amount of security that the court may order when cancelling a CPL is tied to the claim that grounds the CPL, irrespective of other claims that form part of the action. For Barry and Roger this meant that regardless of the other claims they had brought against Kevin, their interest in Donald’s property was what mattered when determining how much security ought to be posted. Under the terms of Donald’s will they were each entitled to 25% of the value of his estate. Logically, the interest they each potentially held in the house was also 25%. By ordering Kevin to post all the proceeds of the sale as security, the amount indeed exceeded Barry and Roger’s claimed interests in the property.
The Court also noted that had Barry and Roger brought the claims on behalf of Donald’s estate, which would have had a claim over the entire property, things may have turned out differently.
What does this mean?
Just like in British Columbia, CPLs are commonly used in Ontario as a means of ensuring that a property cannot be mortgaged, transferred, or sold until the litigation is resolved. If the plaintiff / applicant asserts an interest in a property, she may seek an order registering a CPL on title through Rule 42 of the Rules of Civil Procedure. The CPL provides the plaintiff / applicant with security: once the CPL has been registered, it is nearly impossible to sell the property without the consent of both parties to the proceeding. In addition, the plaintiff / applicant now has a bargaining chip: she may agree to remove the CPL on title in exchange for an agreement that the proceeds of sale will be held in trust pending the resolution of the litigation (which in turns provides the plaintiff / applicant with security for any judgment). The BC Court of Appeal decision is interesting because, in that case, the court weighed in on how much security is appropriate.