Looking for a Resulting Trust in Aid of Execution

June 20, 2017 David M Smith Estate & Trust, Litigation, Trustees, Uncategorized Tags: , , 0 Comments

Leave to Appeal to the Supreme Court of Canada was recently denied in the case of Belokon et al. v. The Kyrgyz Republic, a decision of the Ontario Court of Appeal.  The Court of Appeal upheld the finding of Justice Conway in an interesting example of a commercial case considering resulting trust, well suited to the Commercial List which is now combined in Toronto with the Estates List.

The facts were somewhat complex but, in essence, the applicants sought to enforce arbitral awards in their favour against the Kyrgyz Republic by bringing proceedings in Ontario under s. 18 of the Execution Act The Applicants sought to collect against shares in a Company called Centerra Gold Inc., which shares, the Applicants alleged in alternative argument, were held on a purchase money resulting trust for the Kyrgyz Republic.

As we have noted in a previous blog, the Supreme Court of Canada decision in Rascal Trucking stated that a purchase money resulting trust arises when a person advances funds to contribute to the purchase price of property, but does not take legal title to that property. Where the person advancing the funds is unrelated to the person taking title, the law presumes that the parties intended for the person who advanced the funds to hold a beneficial interest in the property in proportion to that person’s contribution.

The presumption can be rebutted by evidence that at the time of the contribution, the person making the contribution intended to make a gift to the person taking title. While rebutting the presumption requires evidence of the intention of the person who advanced the funds at the time of the advance, after the fact evidence can be admitted so long as the trier of fact is careful to consider the possibility of self-serving changes in intention over time.

In Belokon, Justice Conway noted that the cases relied on by the Applicants failed to support their argument that, where a shareholder pays for an asset, the corporation holds the asset in trust for the shareholder (in this case, the Kyrgyz Republic).  Rascal Trucking was distinguished in that the entity advancing the funds was not an unrelated party; rather, it was the sole shareholder.  Moreover, Justice Conway found that even if a presumption of purchase money resulting trust had applied, it would have been rebutted by the terms of the Agreement governing the ownership terms.

The Court of Appeal, while consistently upholding the decision, did make an interesting observation:

Different considerations may well apply to the relationships of parent-subsidiary or corporation and sole shareholder.  In such contexts, it may well be that while a presumption of gift may not be sensible, a presumption of loan might be….It is not necessary to resolve that issue here.

Thanks for reading,

David Morgan Smith




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