The Supreme Court of Canada’s recent decision in Moore v Sweet provided meaningful clarification on the Canadian law of unjust enrichment and, in particular, the juristic reason analysis.
As it made a finding of unjust enrichment, it was not necessary for the Court to consider the second issue before it, being whether, in the absence of unjust enrichment, a constructive trust could nevertheless be imposed in the circumstances on the basis of “good conscience”.
In 1997, the Supreme Court released its decision in Soulos v Korkontzilas. That case considered situations that may give rise to a constructive trust remedy. In referring to the categories in which a constructive trust may be appropriate, which were noted to historically include where it was otherwise required by good conscience, Justice McLachlin (as she then was) stated as follows:
I conclude that in Canada, under the broad umbrella of good conscience, constructive trusts are recognized both for wrongful acts like fraud and breach of duty of loyalty, as well as to remedy unjust enrichment and corresponding deprivation…Within these two broad categories, there is room for the law of constructive trust to develop and for greater precision to be attained, as time and experience may dictate.
Since 1997, Soulos and the above excerpt have been interpreted inconsistently by scholars and courts of appeal throughout Canada. Some consider Soulos to restrict the availability of constructive trust remedies to only situations where there has been a finding of unjust enrichment or wrongful conduct, while others favour a more liberal interpretation.
The appellant in Moore v Sweet sought, in the alternative to a remedy on the basis of unjust enrichment, a remedial constructive trust with respect to the proceeds of the life insurance policy on the basis of good conscience. In choosing not to address this issue, Justice Côté (writing for the Majority) stated as follows:
This disposition of the appeal renders it unnecessary to determine whether this Court’s decision in Soulos should be interpreted as precluding the availability of a remedial constructive trust beyond cases involving unjust enrichment or wrongful acts like breach of fiduciary duty. Similarly, the extent to which this Court’s decision in Soulos may have incorporated the “traditional English institutional trusts” into the remedial constructive trust framework is beyond the scope of this appeal. While recognizing that these remain open questions, I am of the view that they are best left for another day.
It will be interesting to see if and when the Supreme Court ultimately chooses to determine “the open questions” regarding the availability of the remedial constructive trust. Until then, it appears that some debate regarding the circumstances in which it may be imposed will remain.
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Remedies for breach of trust are commonly sought in estate litigation, most notably in the context of a contested passing of accounts application. An executor who mismanages the estate assets, makes a bad investment, or distributes to a stranger rather than a beneficiary can easily be found to be liable for either breach of trust or breach of fiduciary duty or both.
The remedies available to the disappointed beneficiary can, however, be complex. AIB Group (UK) Plc v. Mark Redler & Co. Solicitors, a 2014 decision of the United Kingdom Supreme Court, provides a comprehensive multi-jurisdictional overview of this interesting area of law.
The case considered the remedies available to a bank when the solicitors it engaged to secure a loan against property failed to adequately secure the bank’s interest. The Court noted that, in considering the remedies available for breach of trust, the Court must consider the different obligations of a trustee in order to evaluate the remedies that may be available for a given breach, such as:
(i) a custodial stewardship duty (to preserve the assets of the trust);
(ii) a management stewardship duty (to manage the property with care), and
(iii) a duty of undivided loyalty (prohibiting a trustee from taking advantage of his or her position without fully informed consent of beneficiaries).
What is interesting from the perspective of an estates litigator is the Court’s observation that, “historically, the remedies for such breaches took the form of orders made after a process of accounting. The basis of the accounting would reflect the nature of the obligation. The operation of the process involved the court having a power, where appropriate, to “falsify” and to “surcharge.”
Falsification is another word for “disallow”; the Court will “falsify” the unauthorized breach of the custodial stewardship duty and require the trustee to make good the loss to the trust.
Although the terms are less commonly referenced in modern practice, surcharge and falsification are great examples of how courts provide remedies for breach of trust in the context of a contested passing of accounts.
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The concept of the purchase money resulting trust was considered by the Supreme Court of Canada in Nishi v Rascal Trucking Ltd, 2013 SCC 33.
Rascal Trucking Ltd. leased land from Kismet Enterprises Inc. There was a prior dispute between the companies, which resulted in an order being granted requiring Rascal to remove topsoil from the land. Due to non-compliance with the order granted, the City of Nanaimo added the amount of $110,679.74 to Kismet’s tax bill. After this, Kismet stopped making its mortgage payments to CIBC, and as such, CIBC began paying the mortgage payments and added the amount to the mortgage debt. CIBC eventually sold the land to a principal at Kismet. Rascal contributed the amount of $110,679.74 to the purchase of the property, equal to the debt it owed Kismet. In 2008, Rascal sued Kismet’s principal claiming a resulting trust. Rascal lost at trial, won in the Court of Appeal, and lost at the Supreme Court of Canada.
As defined in the decision at paragraphs 1 and 2:
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. This is called the presumption of resulting trust.
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.
The Supreme Court of Canada concluded that Rascal intended to make a substantial gift by repaying the cost of the debt. This intention was strong enough to rebut the presumption of a resulting trust, and as such, there was no resulting trust and Rascal did not hold a beneficial interest in the property.
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Other Articles You Might Be Interested In
When a trustee has breached his or her fiduciary obligations, the beneficiaries have access to a wide variety of potential remedies. However, a challenge arises when the person who improperly deals with the trust assets is effectively a stranger to the trust.
There are two types of remedies that can be applied in this latter scenario. The first is a proprietary remedy which requires that the trust property (or a traceable substitute) is being held. As long as the trust interest can be traced, it will subsist through the transfer of property. The only person against whom it cannot be claimed is a bona fide purchaser for value without notice.
The second type of remedy is personal in nature. If the third party is not a trustee, it can be difficult to attribute personal liability. To rectify this problem, the third party can be designated by the courts as a constructive trustee.
It is important to note that a constructive trustee is not the same as a trustee of a constructive trust; the most significant difference being that if a third party is found liable as a constructive trustee, he or she can be found to be personally liable. In contrast, if a constructive trust is found, the third party simply holds the property in trust for the beneficiaries. (Waters’ Law of Trusts in Canada, 4th Ed at 11.II)
According to the rule stated in Barnes v Addy (1873–74) LR 9 Ch App 244, there are generally three circumstances in which a third party can be found to be liable as a constructive trustee. These are:
Dishonest Assistance – This is a situation in which a third party assists the actual trustee in committing a breach or trust. In this sense, a legal fiction is created whereby the third party is designated as constructive trustee in order to impose a personal remedy. The standard here can be somewhat subjective but it typically requires actual dishonesty. Although carelessness may be a factor, the third party should have knowingly and intentionally taken part in the breach for the designation of constructive trustee to apply (Air Canada v M & L Travel).
Knowing Receipt of Trust Property – This situation arises when a third party accepts trust property from the trustee knowing that the funds are being given in breach of trust. This has been viewed by the Supreme Court of Canada in Citadel v Lloyds Bank as being akin to unjust enrichment claims with restitution being the appropriate remedy. However, the English courts have viewed it more as an equitable wrong such as conversion where the remedy is one of compensation or disgorgement.
Trustee de son Tort – This finding arises when a third party is essentially acting as the trustee (i.e. the constructive trustee) with all of the duties and obligations that this entails.
The concept of the constructive trustee has stepped in to create a remedy for situations in which a third party is responsible for a breach of trust. Despite not having a fiduciary duty to the beneficiaries, the courts have been generally unwilling to allow these individuals to escape liability and as a result, have shown that the obligations of a trustee may nonetheless be imposed upon a third party under certain circumstances.
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Reeves v. Dean, a recent decision of the Supreme Court of British Columbia (BCSC), acts as a helpful reminder that a fiduciary relationship may arise between a caregiver and their client.
The plaintiff was 50 years old and suffered from developmental delays making her unable to independently manage her finances. The defendant was the plaintiff’s caregiver pursuant to a contract of services between the defendant and the Provincial Government. The plaintiff sought damages based on, amongst other things, breach of fiduciary duty arising from the misappropriation of monies arising from a joint account between the plaintiff and defendant.
The decision of Ben-Israel v. Vitacare Medical Products Inc. (ON SC) provides a helpful summary of the traditional categories of relationship in which a fiduciary duty exists: agent to principal; lawyer to client; trustee to beneficiary; business partner to partner; and, director to corporation. In addition, as set out in the Supreme Court of Canada decision in Lac Minerals v. International Resources, relationships in which a fiduciary obligation have been imposed appear to possess three general characteristics:
- The fiduciary has scope for the exercise of some discretion or power;
- The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and
- The beneficiary is peculiarly vulnerable to, or at the mercy of, the fiduciary holding the discretion or power.
Of the three characteristics, the BCSC found that it was the vulnerability of the client that was essential to a finding of a fiduciary relationship. As such, since the plaintiff was in a position of disadvantage regarding the administration of the joint account monies, and consequently placed her trust in the defendant, a fiduciary relationship was found to exist between the plaintiff and defendant.
Therefore, the plaintiff was entitled to rely on the remedies available for breach of fiduciary duty including constructive trust, accounting for profits, and equitable compensation to restore to the plaintiff what was lost.
We hear a lot about fiduciary duty in the practice of wills and estates. But what is it exactly? According to this definition in Irwin law’s online dictionary, a fiduciary is “a person occupying a position of trust vis-à-vis another person”.
In the recent case of Hooper (Estate) v. Hooper, 2011 ONSC 4140, the court discusses the concept of fiduciary duty. In Hooper, the estate trustee, who did not defend the proceedings against him, placed himself in a fiduciary relationship with respect to not only the deceased, but also in relation to the other named beneficiaries.
The court commented that when a person in such a fiduciary position fails to pass accounts or otherwise account for his or her actions, he or she can be required to repay the amount unaccounted for to the estate. Breach of such a special relationship gives rise to wide array of equitable remedies. Such equitable remedies are always subject to the discretion of the court, and are designed to address not only fairness between the parties, but also the public concern about the maintenance of the integrity of fiduciary relationships.
In exercising its equitable discretion, the court is concerned not only with compensating a wronged plaintiff, but also with upholding the obligations of good faith and loyalty, which are the cornerstone of the concept of fiduciary duty.
The freedom of the fiduciary is limited by the nature of the obligation he or she undertakes, an obligation which “betokens loyalty, good faith and avoidance of a conflict of duty in self interest.” In short, equity is concerned not only to compensate the plaintiff, but to enforce the trust which is at its heart.
Fiduciary duties are clearly those which should never be entered into lightly or on an uninformed basis.
Sharon Davis – Click here for more information on Sharon Davis.
Listen to the deemed undertaking rule.
This week on Hull on Estates, Paul and Allan discuss the deemed undertaking rule and its application to estate matters.
This week on Hull on Estates, Rick and David discuss procedure under the Substitution Decisions Act and review executor and attorney obligations as well as specific procedures permitting someone to compel an accounting.