Canada: Constructive Trusts And Certificates Of Pending Litigation: Latest Update On Pleading Requirements

In a recent decision Zou v Khatkar, 2021 BCSC 1931, the court revisited the topic of pleading requirements in claiming constructive trust to maintain a valid Certificate of Pending Litigation (CPL).

In this case, the defendants sought to cancel CPLs registered by the plaintiff against five investment properties owned by the defendants. The underlying dispute involved a purchase by the plaintiff of a residential property from the defendant builders. The plaintiff alleged that shortly after taking possession of the property she discovered various deficiencies with the property. The plaintiff sued the sellers, claiming damages for breach of purchase contract, and misrepresentations relating to the condition of the property. The plaintiff later amended her claim to seek "remedial and/or substantive constructive trust" over the defendants' properties, and registered five CPLs against those properties.

The Court reviewed and clarified the law relating to pleading constructive trusts and valid CPLs. Constructive trusts are open to the courts in three situations: breach of a fiduciary duty, an unjust enrichment, or a case‑by‑case situation where good conscience so requires, otherwise referred to as a substantive constructive trusts¹.

On an application to discharge CPLs under section 215 of the BC Land Title Act, the test is whether the pleadings are capable of giving rise to an interest in land. More specifically, the plaintiff "cannot claim an interest in land and then wait for evidence or discovery that would establish the requirements of law".

The court noted somewhat inconsistent authorities on the pleading requirements for constructive trust claims, and clarified the inconsistencies. In order to properly plead either remedial or substantive constructive trust, in addition to pleading the cause of action on which constructive trust is based, the plaintiff must also plead:

• a substantial and direct link or a causal connection between the claim and the property upon which the constructive trust is to be impressed; and
• inadequacy or insufficiency of damages².

In this case, the plaintiff failed to meet either of the above requirements. The plaintiff's claim was effectively for rescission or damages. There was no direct link or causal connection between the plaintiff's pleadings and the defendants' properties encumbered by the CPLs. Further, there was no reference to insufficiency of damages. Accordingly, the pleadings were deficient and the five CPLs were cancelled.

The above decision confirms that the current trend in the jurisprudence is to narrow the circumstances in which a plaintiff can file and maintain a valid Certificate of Pending Litigation based on constructive trust. If you have any questions about CPLs or other charges registered against a property, please contact the writer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.