Friday, May 21, 2010

Unjust Enrichment: B.C. Court of Appeal Sets Out Analytic Framework in Common Law Relationships

Usually in a common law relationship, each common law spouse provides benefits to the other. The benefits may take many forms including money, use of property, domestic services and other labour.

In British Columbia, on the breakdown of the relationship, one common law spouse may advance a claim against the other for money or an interest in property. The law recognizes such claims if a common law spouse has enriched the other, and suffered a corresponding deprivation unless there is a juristic, or legal basis, for the benefits. This is called unjust enrichment.

A common law spouse may also advance an unjust enrichment claim against their deceased common law spouse’s estate.

Unjust enrichment claims are not confined to common law relationships, but probably arise more frequently in the breakdown of common law relationships than in other types of relationships.

Because common law spouses usually confer benefits on each other, it may often be difficult for the courts to assess unjust enrichment claims. On the breakdown of the relationship, one common law spouse, the plaintiff, sues the other for money or an interest in property. The plaintiff says he enriched the defendant common law spouse. The defendant says, “yes, but I gave you equal or greater benefits. Therefore, I should not have to pay you or give you anything.” The defendant might counter claim, asking the court to award the defendant something from the plaintiff.

How should the court consider the reciprocating sacrifices and benefits made by common law spouses to each other?

In the recent decision in Wilson v. Fotsch, 2010 BCCA 226, Madam Justice Huddart, writing for the majority, has set out an analytic framework for assessing unjust enrichment claims in common law relationships. She wrote:

[11] The basic outline for that analysis can be summarized this way:

1. Benefit/Enrichment

2. Detriment

3. Absence of a juristic reason for the enrichment
a. Established categories
i. Contract
ii. Disposition of law
iii. Donative intent
iv. Other valid common law, equitable, or statutory obligations
b. Reason to deny recovery
i. Public policy considerations
ii. Legitimate expectations
iii. Potential new category

Change of position; estoppel; statutory defences; laches and acquiescence; limitation periods; counter-restitution not possible

Choice of Remedy
a. Is a monetary remedy sufficient?
b. Is a constructive trust required (or equitable damages for the value of the trust interest)?

Quantification of the Remedy
a. Value received (quantum meruit basis)
b. Value survived (proportionate share basis)

Set-Off (equitable and legal)

Pre-judgment interest

Madam Justice Huddart considered each stage, and set out how reciprocating benefits affect the analysis.

She held that considering whether the plaintiff has enriched the defendant, to the plaintiff’s detriment, the court ought not to consider benefits conferred by the defendant on the plaintiff.

She also said that consideration of reciprocating benefits should have a very limited role in assessing whether there is a juristic reason for the enrichment. She wrote at paragraphs 30 through 33:

[30] Whether seen as a proposed new category of juristic reason or as flowing from legitimate expectations of the parties, too narrow a focus on reciprocal benefits in the juristic reason analysis has the potential to blend the existence of enrichment with the question of its extent. While a court should be justifiably concerned with protecting a defendant from an excessive award where he or she has provided the plaintiff with benefits over the course of the relationship, that is not the question being asked at the juristic reason stage. The juristic reason analysis is intended to establish whether there is a reason for the defendant to retain a proven enrichment, not to determine its value or off-set reciprocal enrichment by the plaintiff. The issues of quantum and set-off are for the quantification of the award following a finding of unjust enrichment. By interposing the issue of extent into the juristic reason stage, the full unjust enrichment analysis is short-circuited.

[31] The result of finding that the defendant had a juristic reason for the enrichment is a declaration that any enrichment was not unjust. To permit such a result at the second step of the juristic reason analysis where the other preconditions are present is to deny the existence of an unjust transfer of wealth which, from the perspective of the plaintiff, is patently unfair because it does not recognize his or her contributions. The receipt of benefits by a plaintiff from a defendant does not mean ipso facto that the defendant has not been unjustly enriched. That is the point the Supreme Court made in Peter.

[32] A defendant can be preserved from any unfair effect of an unjust enrichment award by careful consideration of the value of the enrichment at the assessment phase, with appropriate deductions made for the benefits the defendant provided to the plaintiff. The finding of unjust enrichment itself does not need to be disturbed.

[33] This reasoning also applies to the consideration of reciprocal benefits within the inquiry into the parties’ “reasonable” or “legitimate” expectations. This inquiry is noted in Sorochan (at 46, 52-53), Pettkus (at 848-49), Peter (at 990-91), and Garland (at paras. 55-56). It is not to be confused with the search for “phantom intent” necessary for a resulting trust that Dickson J. decried in Rathwell (at 442-44). This inquiry at the second step of the juristic reason analysis risks a focus on the defendant’s expectations which all too easily may avoid the Supreme Court’s instruction in Garland to look at the legitimate expectations of both parties. If the value of reciprocal benefits is considered in that inquiry, that risk is amplified.

Rather, Madam Justice Huddart held that reciprocal benefits should be considered near the end of the analysis at the set-off stage. The plaintiff’s claim may be quantified on the basis of the value of the goods or services the plaintiff provided when the plaintiff provided them, which is called the value-received approach. Or it may be quantified on the basis of the value created in an asset through the plaintiff’s contributions, which is called the value-survived approach. In common-law marriage claims the courts usually favour a value-survived approach.

According to Madam Justice Huddart, after the value of the plaintiffs contributions are assessed, the court should then assess the value of the defendant’s contributions. If the court applies a value-received approach, then the court will set off the value of the defendant’s contributions to the plaintiff from any award. In the case of a value-survived approach, the court will set off a percentage of the value of the asset that reflects the defendant’s contributions.

Madam Justice Huddart describes the process of equitable set-off at paragraphs 80-89:

[80] Whether mutual claims of unjust enrichment are pleaded, equitable set-off is pleaded as a defence, or evidence of a reciprocal enrichment is led but not pleaded, they should all be treated in the same fashion. In principle, the amount of the set-off should be determined by the same analysis that would be applied to a counterclaim for unjust enrichment.

[81] In examining the contributions to property, only those contributions that allowed the other party to acquire, increase, or maintain the value of an asset will be considered. For example, with a vehicle, payment by the defendant to the plaintiff to buy the car in the first place would be a set-off. Payment by the defendant of the costs of maintenance (brake re-alignment) or new parts (carburetor; tires) that preserve or enhance the value of the vehicle would be set-off. Payment of the ordinary operating expenses (gas; AirCare; insurance) would not be set-off, because they do not enhance or maintain any value that is capable of surviving the end of the relationship. This will be a question to be determined on the evidence.

[82] The property must be assessed using its value at the end of the relationship. In this way, any decline or increase in value will be properly taken into account.

[83] Only if the property survives the relationship will set-off be permissible. If a plaintiff’s car is written off, for example, contributions to its preservation or maintenance by the defendant will not be set-off because the property no longer exists in the hands of the plaintiff. Where property has been sold prior to the end of the relationship, contributions to that property may properly be set-off to the extent the residual value existed as liquidity at the end of the relationship. Thus, where the proceeds of sale were spent during the relationship on living expenses, a deduction would not be appropriate. Where they were spent after the end of the relationship, a deduction would be appropriate.

[84] Relieving the other party of a liability (such as the payment of a debt to a third party) should also be set-off.

[85] To give a global example, if a plaintiff (Mr. “Y”) entered the relationship with a speedboat, a truck, a small cottage, and nothing else, and he contributed to the relationship by renovating the defendant partner’s (Ms. “X”) house (to which she held sole title), the court could well find that Ms. X was unjustly enriched. However, when it comes time to quantify the value of the enrichment, the court must account for the fact that Ms. X paid for maintenance, a new motor and winter storage costs for the boat, new tires and a carburetor for his truck, and a roof for the cottage. All of those contributions to the improvement and preservation of the plaintiff’s assets must be off-set against the defendant’s unjust enrichment to determine the final award.

[86] In determining what, if any, equitable set-off against an award is appropriate, care must be taken not to set-off contributions that have already been included at the quantification stage. This will be particularly important where a set-off is claimed for the other party’s reciprocal contribution of domestic services or payment for the ordinary incidents of family life not specifically referable to property.

[87] This does not mean the provision of food and shelter or domestic services are not to be considered in an unjust enrichment analysis. Where the contributions of one have enabled the other to acquire property, that contribution will have been measured at the valuation stage on both the value received and the value survived approach. On the value received approach, the provision of food and accommodation or uncompensated domestic services will be included in the determination of the monetary value of unremunerated domestic services. On the value survived approach, they will be included in the determination of the parties’ contributions and thus the appropriate apportionment.

[88] Once the value to be set-off has been quantified, on the value received approach, that amount will be deducted from the plaintiff’s award as a dollar figure. On the value survived approach, the set-off amount may be deducted as a percentage from the plaintiff’s proportionate share. While it would be possible to allow for the set-off amount when initially determining the proportionate share that calculation unnecessarily combines two distinct steps in the analysis – the determination of proportionate share based on contribution, and set-off based on a reciprocal benefit to property. Transparency values support an independent analysis.

[89] In circumstances where the plaintiff’s benefits outweigh the defendant’s, a plaintiff might well have established unjust enrichment, but would not receive an award: Harrison at para. 15.

1 comment:

Anonymous said...

Unjust enrichment. Family member, leaves career at height of earning potential to return to family home and care for elderly and ailing mother on agreement with brother who is a busy physician. Edlerly mother dies, within year brother who was physician dies, and now family member facing a potential lawsuit for rent believed should have been paid while living in family home. I believe a case for unjust enrichment could apply to surviving brother against the estate of deceased brother's estate. I do not know how closely you follow your blog but I will check back. There are few lawyers who blog on unjust enrichment.
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