Unjust Enrichment

An Article by Len Fishman

(This article was written for a Law Society of Manitoba
 Continuing Legal Education Seminar on March 5, 1996)

 

(Table of Contents)

 

B. The Two Trusts - Resulting and Constructive

1. Resulting Trust

The resulting trust, because of its limiting focus on finding an intention to share and direct contribution necessarily connected to the asset acquired, has lost favour and its growth has been restricted. It certainly did not achieve the result that Mrs. Murdoch sought.

The resulting trust arises where the law gives effect to the parties' articulated or presumed joint intention that beneficial ownership of property should be shared notwithstanding the legal indices of title. Short of an express agreement, the court may look at the parties' conduct to see if an intention can be inferred. Because "equity presumes a bargain not a gift", the court will presume an intention to vest the whole of the title where the property is acquired entirely with the plaintiff's money, or may find an intention to share proportionately where a smaller but direct financial contribution is made.

The search for intention has created some tortured reasoning. The court often found itself twisting around archaic presumptions, such as the presumption of advancement, and shifting burdens of proof. One extension of the presumption allows the court to accept post-acquisition contributions to show common intention, such that a person who may have paid mortgage payments on the property after its purchase, can be found to have an interest. In this context the courts of Canada, however, have declined to hold that indirect benefits, whether before or after the acquisition, such as spousal efforts short of financial contribution, to be the basis of a resulting trust.

Given the intrinsic nature of interpersonal relationships, particularly the romantic, trusts in marital and quasi-marital situations seem rarely to be express. The natural inclination, in those early halcyon days of a relationship, is not to consider or articulate carefully the economic foundations of the relationship or the aftermath of its demise, much less prudently reduce such thoughts to writing. The remedial constructive trust can be used to paper over those inarticulate major premises.

2. Constructive Trust

A constructive trust is one imposed by the court, against the wishes of the settlor. The finding is discretionary, involving an analysis of the entire relationship between the parties. It is clearly an exercise in hindsight, but once made can be effective from the date the right to relief arose, that is, when the duty to make restitution occurs. The court will impose a constructive trust where it would prevent equitable fraud, usually in the context of fiduciary relationships.

In his dissent in Murdoch, 1975, Laskin J., would have considered imposing the "remedial constructive trust". In that case Mrs. Murdoch's contribution over the 25 years of marriage was indirect, that is, she gave fully of her time and energy but no direct moneys except some loans to her husband which were documented and repaid. The trial court found that her efforts and role were no more than what the typical rancher's wife did, a subjective test it would seem, and therefore did not amount to something valuable to the extent of money's worth.

But by 1993, in Peter v. Beblow, the Supreme Court of Canada approved Laskin's formulation and gave the following definition:

A constructive trust arises where a person who holds title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it.

A constructive trust moves beyond the search for intention, which is integral to the resulting trust, focusing on contribution, the circumstances in which it is made, and a link to property. The move is from the study of intention to an assessment of what the conscience demands.

In Pettkus v. Becker, where there was indirect financial contribution, the Supreme Court of Canada moved away from the need for a fiduciary relationship between the parties and explicitly recognized the constructive trust as one of the remedies for unjust enrichment.

In Sorochan v. Sorochan, where the contribution was work on the property already owned by the defendant, Dickson J., for the unanimous court clarified that:

... the constructive trust remedy should not be confined to cases involving property acquisition. While it is important to require that some nexus exist between the claimant's deprivation and the property in question, the link need not always take the form of a contribution to the actual acquisition of the property.

Further, he said that the "clear link" to property may also be found where the claimant's:

... labour directly and substantially contributed to the maintenance and preservation of the farm, preventing asset deterioration or divestment.

Historically, the constructive trust was seen as its own institution, one of Equity's delicate creatures. It required a fiduciary relationship and corresponding duty. It is a trust, like an express trust, the distinction being in its mode of creation. It is proprietary, creating an interest in property, that is, a right in rem.

In Canada, the constructive trust, has evolved as something of an amalgam of equity and the common law. It may be that there is a distinction between a "constructive trust", a right created in property, and a "remedial constructive trust", which can be seen as an in personam remedy, imposed in satisfaction of the unjust enrichment. This last point is far from settled as a review of the debate between the majority and dissenting judgments in Rawluk reveals.

If the trust is an institution, then the property interest is arguably available to any interested party, the enriched as well as the deprived, and even perhaps a third party such as a creditor. If it is only a personal remedy, then it would be available only to the non-titled person whose deprivation founded the right of action. Timing becomes a critical issue: the right of property may be found to predate the finding; the personal remedy will only be effective from the date of pronouncement by the court.

In McDonald v. McDonald, the Ontario High Court of Justice, in a decision purposefully held and not made until after the release of the Ontario Court of Appeal's reasons in Rawluk, determined that the titled husband could have the trust imposed on his non-titled spouse. This was a reverse of the usual situation in which the deprived party sues for recognition of the trust.

The husband's goal in Mcdonald was to have his wife share in the enormous decrease, over one million dollars, in value of the property from the date of separation to the date of trial several years later. Left solely with the provisions of Ontario's marital property statute, which mandates that valuation is to be done as of the date of separation, the husband would have borne the entire burden of the decrease. Manitoba's statute would be interpreted similarly.

In McDonald, the wife had obtained an order shortly after separation restraining the husband from disposing of the properties. The decline in value of was attributable to neither party but was a function of an unexpected decline in smokers in North America. The statute would have him bear the loss, as it would allow him to keep the gain had the reverse occurred.

McLachlin J., writing for the dissent in Rawluk, criticized the decision in McDonald strongly. The majority, while not adverting specifically to McDonald, clearly would not bind a court to legislative inequity. She wrote:

So we arrive at the anomaly of the equitable remedy of constructive trust being applied against the wishes of the party found to have been unfairly treated, at the behest of the party who has been unjustly enriched. What does this leave of the maxim that he who seeks the aid of equity must come with clean hands? The fallacy at the root of such an approach is that of treating the remedy of constructive trust as though it were a property interest, which for the sake of consistency must be imposed regardless of the circumstances or of other remedies.

The proprietary rights of arm's length third parties, such as creditors or purchasers for value, can complicate matters, depending on the date the trust becomes effective. If it arises on the date of separation, for example, or on the later date when it is found by the court, the consequences of the finding could be significantly different and therefore inequitable to such other parties.

The court, one would expect, will always be alert to the rights of third parties, who if arm's length and otherwise innocent, will not have had notice of the claim. Clearly, they ought not to be deprived of their interests in what was thought to be the debtor's or transferor's property. Rules of priority need to be set out. The court, in finding the constructive trust or determining to impose it following a finding of unjust enrichment, should equally be alert to determine its start date, bearing in mind consequences, if any, to those strangers to the action.

One should also be careful to mind the distinction between constructive trust and unjust enrichment. Not every constructive trust follows from unjust enrichment and not every finding of unjust enrichment will lead to the imposition of a constructive trust.