Common Intention Resulting Trust

In British Columbia, a resulting trust usually arises in a couple of different circumstances. First, where one person gratuitously transfers an asset to another, or purchases an asset but puts the title in someone else’s name, there is a presumption of that the recipient of the asset holds it in trust for the benefit of the person who transferred or purchased the asset. The asset “results” back to the person who transferred or purchased the asset. This is a presumption only, and may be rebutted if the recipient of the title to the asset proves that it was a gift. I have written several posts, including this one, on the presumption of resulting trust.

Second, a resulting trust may arise when someone transfers assets to a trust, but the trust is invalid or fails. Perhaps it is too uncertain whom the trust is intended to benefit. In that case, the assets result back to the person who originally transferred the assets into the trust.

There is a third situation where the courts have occasionally found a resulting trust. This is the “common intention” resulting trust, and it has been applied to give a spouse, or partner in a spousal relationship, an interest in assets owned by the other spouse or partner after a breakdown in the relationship. Although title to the asset was only owned by one spouse or partner, the courts have on occasion either found or implied that there was a common intention by both spouses or partners to share the asset. The court could then hold that the party with the title held it on a resulting trust for both parties, even if the person making the claim did not contribute to the asset.

The common intention resulting trust has not been very common in recent years. Claims by married spouses on the break down of a relationship are generally dealt with under family property legislation such as the Family Relations Act.

Since the Supreme Court of Canada decision in Pettkus v. Becker, [1980] 2 S.C.R. 834,  the courts have generally considered property claims on the breakdown of an unmarried couple's relationship in accordance with the principles of unjust enrichment. The partner without title is required to prove that his or her contributions have enriched the other party, that he or she as suffered a corresponding deprivation, and that there is no juristic reason for the enrichment.

The common intention resulting trust doesn't made a lot of sense to me. For one thing, in a resulting trust, assets “result” back to the person who contributed or purchased the assets. But in the common intention resulting trust, the asset may never have been owned by the claimant, and the claimant might not have even contributed to the acquisition or preservation of the asset. The asset doesn’t result back to anyone. If the spouse or partner who had the title intended to hold it in trust for both parties, that is an express trust. But in most of the common intention resulting trust cases, the evidence would fall short of establishing an express trust.

It turns out that on this issue, I am in good company. On February 18, 2011, the Supreme Court of Canada, in two cases decided at the same time, Kerr v. Baranow, and Vanasse v. Seguin, 2011 SCC 10, expressly held that the common intention resulting trust has no further role to play in resolving property disputes in domestic cases. Mr. Justice Cromwell wrote at paragraphs 23 through 29:

[23] The Court’s development of the common intention resulting trust ended with Pettkus, in which Dickson J. (as he then was) noted the “many difficulties, chronicled in the cases and in the legal literature” as well as the “artificiality of the common intention approach” to resulting trusts: at pp. 842-3. He also clearly rejected the notion that the requisite common intention could be attributed to the parties where such an intention was negated by the evidence: p. 847. The import of Pettkus was that the law of unjust enrichment, coupled with the remedial constructive trust, became the more flexible and appropriate lens through which to view property and financial disputes in domestic situations. As Ms. Kerr stated in her factum, the “approach enunciated in Pettkus v. Becker has become the dominant legal paradigm for the resolution of property disputes between common law spouses” (para. 100).  

[24] This, in my view, is as it should be, and the time has come to say that the common intention resulting trust has no further role to play in the resolution of domestic cases. I say this for four reasons.

[25] First, as the abundant scholarly criticism demonstrates, the common intention resulting trust is doctrinally unsound. It is inconsistent with the underlying principles of resulting trust law. Where the issue of intention is relevant to the finding of resulting trust, it is the intention of the grantor or contributor alone that counts. As Professor Waters puts it, “In imposing a resulting trust upon the recipient, Equity is never concerned with [common] intention (Waters’, at p. 431).” The underlying principles of resulting trust law also make it hard to accommodate situations in which the contribution made by the claimant was not in the form of property or closely linked to its acquisition. The point of the resulting trust is that the claimant is asking for his or her own property back, or for the recognition of his or her proportionate interest in the asset which the other has acquired with that property. This thinking extends artificially to claims that are based on contributions that are not clearly associated with the acquisition of an interest in property; in such cases there is not, in any meaningful sense, a “resulting” back of the transferred property: Waters’, at p. 432. It follows that a resulting trust based solely on intention without a transfer of property is, as Oosterhoff puts it, a doctrinal impossibility: “. . . a resulting trust can arise only when one person has transferred assets to, or purchased assets for, another person and did not intend to make a gift of the property”: p. 642. The final doctrinal problem is that the relevant time for ascertaining intention is the time of acquisition of the property. As a result, it is hard to see how a resulting trust can arise from contributions made over time to the improvement of an existing asset, or contributions in kind over time for its maintenance. As Oosterhoff succinctly puts it at p. 652, a resulting trust is inappropriate in these circumstances because its imposition, in effect, forces one party to give up beneficial ownership which he or she enjoyed before the improvement or maintenance occurred.

[26] There are problems beyond these doctrinal issues. A second difficulty with the common intention resulting trust is that the notion of common intention may be highly artificial, particularly in domestic cases. The search for common intention may easily become “a mere vehicle or formula” for giving a share of an asset, divorced from any realistic assessment of the actual intention of the parties. Dickson J. in Pettkus noted the artificiality and undue malleability of the common intention approach: at pp. 843-44.

[27] Third, the “common intention” resulting trust in Canada evolved from a misreading of some imprecise language in early authorities from the House of Lords. While much has been written on this topic, it is sufficient for my purposes to note, as did Dickson J. in Pettkus, at p. 842, that the principles upon which the common intention resulting trust jurisprudence developed are found in the House of Lords decisions in Pettitt v. Pettitt, [1970] A.C. 777, and Gissing. However, no clear majority opinion emerged in those cases and four of the five Law Lords in Gissing spoke of “resulting, implied or constructive trusts” without distinction. The passages that have been most influential in Canada on this point, those authored by Lord Diplock, in fact relate to constructive rather than resulting trusts: see, e.g., Waters’, at pp. 430-35; Oosterhoff, at pp. 642-43. I find persuasive Professor Waters’ comments, specifically approved by Dickson J. in Pettkus, that where the search for common intention becomes simply a vehicle for reaching what the court perceives to be a just result, “[i]t is in fact a constructive trust approach masquerading as a resulting trust approach”: D. Waters, Comment (1975), 53 Can. Bar Rev. 366, at p. 368.

[28] Finally, as the development of the law since Pettkus has shown, the principles of unjust enrichment, coupled with the possible remedy of a constructive trust, provide a much less artificial, more comprehensive and more principled basis to address the wide variety of circumstances that lead to claims arising out of domestic partnerships. There is no need for any artificial inquiry into common intent. Claims for compensation as well as for property interests may be addressed. Contributions of all kinds and made at all times may be justly considered. The equities of the particular case are considered transparently and according to principle, rather than masquerading behind often artificial attempts to find common intent to support what the court thinks for unstated reasons is a just result.

[29] I would hold that the resulting trust arising solely from the common intention of the parties, as described by the Court in Murdoch and Rathwell, no longer has a useful role to play in resolving property and financial disputes in domestic cases. I emphasize that I am speaking here only of the common intention resulting trust. I am not addressing other aspects of the law relating to resulting trusts, nor am I suggesting that a resulting trust that would otherwise validly arise is defeated by the existence in fact of common intention.

Sections of the Adult Guardianship and Planning Statutes Amendment Act, 2007 come into effect September 1, 2010

Portions of the Adult Guardianship and Planning Statutes Amendment Act, 2007 will come into force effective September 1, 2011. The Courthouse Libraries B.C. website sets out the proclamation here as follows:

IN FORCE DATE: Sep 1, 2011


Sections IN FORCE:section 1 (k) as it enacts the definitions of “attorney”, “enduring power of attorney”, “financial affairs” and “power of attorney”; the rest of the Act EXCEPT the following: the remainder of section 1 (k); sections 1 (b) and (c), 4, 5, 15, 18, 31 (b), 33, 67, 73, 82, 94 to 97, 100 to 103, 105 (a), and 110 (b) and (c); section 17 as it repeals section 62 of the Adult Guardianship Act; section 17 as it enacts sections 62, 62.1, 62.2 (2), 62.3 and 63 (2) (a) to (r) and (3) to (6) of the Adult Guardianship Act; section 29 as it enacts section 19.92 of the Health Care (Consent) and Care Facility (Admission) Act; section 31 (a) as it enacts section 34 (2) (n) of the Health Care (Consent) and Care Facility (Admission) Act; section 91 as it amends section 282 (2) of the Land Title Act, and section 99 as it enacts section 9 (1) (b) and (c) of the Partition of Property Act

It's a bit confusing trying to figure out exactly what sections are in force, but it appears that the amendments to the Power of Attorney Act and the Representation Agreement Act are being brought into force. The repeal of the Patients Property Act, and its replacement with new legislation is not being brought into effect.

Adequacy of Legal Advice and the Presumption of Undue Influence

Last week I wrote here about the evidentiary issues in Modonese v. Delac Estate, 2011 BCSC 82, concerning the admissibility of out-of-court statements made Regina Delac. The case was a dispute between her two children about whether her son was entitled to keep his mother’s house as the surviving joint tenant or whether the house formed part of her estate to be dividing equally between her son and daughter in accordance with her will. A couple of years before her death, Regina Delac had signed a transfer which when registered at the Land Title Office, transferred the title to her house from her sole name into a joint tenancy with her son, Marko Delac. Mr. Justice Groves declared that the house is an estate asset.

Today I am writing about a different aspect of this decision: Mr. Justice Groves’ discussion of independent legal advice.

In Modonese, Mr. Justice Groves found that the nature of the relationship between Regina Delac and her son was such that her son was in a position to dominate his mother. There was evidence that he had been violent with her, that she was afraid of him and did not want to upset him, and that she wasn’t sure what she had signed. Because of the dominating nature of their relationship, the court applied a presumption that Marko Delac had obtained an interest in the title to the house by undue influence.

The presumption of undue influence is only a presumption. It may be rebutted, but the burden is on the person who benefited from the transaction, in this case Marko Delac, to show that the transfer was made voluntarily, without undue influence.

One way to rebut the presumption of undue influence is to show that the person who made the transfer received independent legal advice.

Regina Delac signed the transfer document in front of a notary public. Mr. Justice Groves summarized the notary public’s evidence as follows:

[39] Michael Tin, a notary public, gave evidence for the defence. He indicates that on the 23rd of May 2003, following instructions received, he arranged for the signing of a transfer for the Royal Oak property, which was previously in the name of Regina Delac alone, to be transferred into the name of Regina Delac and Marko Delac, as joint tenants. He testified that Marko Delac is a long time client of his and that Marko approached him about doing the transfer. He indicated that he would have had to receive instructions from Regina to effect the transfer; he further indicated that between the 19th of May 2003 and the 23rd of May 2003, he spoke to Regina two or three times.

[40] He testified that he arranged with Marko to have his mother brought to his office. Marko drove Regina and called from downstairs. Michael Tin was clear that he asked Marko to wait outside and that she spoke to Regina alone with just himself in the car. He indicated that he went over joint tenancy and tenancy-in-common with Regina and explained the difference between the two. He said that Regina had indicated that she wanted a joint tenancy arrangement.

[41] Michael Tin was clear that Marko was not present and not visible during this signing. Michael Tin indicated that he felt Regina was capable of providing instructions and that she knew what she was doing. In cross examination it became clear that Michael Tin had, for the most part, relied on information he received from Marko to draw up the transfer. It was further clear that the appointment with Regina was arranged through Marko that Marko had brought Regina to his office and that Marko had arranged for Michael Tin to go downstairs to meet them.

[42] In cross examination he confirmed that issues which never came up included a general discussion of assets, a discussion of debts, a discussion of estates, Regina’s level of health, other funds advanced by Regina, or any inquiry as to Regina and Marko’s personal relationship.

[43] The fee for services was also discussed in cross examination. The total bill was approximately $200, of which only $32.93 was for fees. Michael Tin indicated that that was the price he charged for a transfer at the time. Michael Tin confirmed that Marko paid the account.

[44] Michael Tin’s evidence stands alone in regards to who was present during the transfer.

Mr. Justice Groves found that Marko Delac was either in the car or close by when his mother signed the transfer.

What advice is required from a lawyer or notary public to rebut a presumption of undue influence? Did the notary public take sufficient steps to see that Regina Delac was acting voluntarily, free of any undue influence?

Mr. Justice Groves quoted from a Newfoundland Court of Appeal decision on the requirements for independent legal advice as follows:

[121] In Stewart [v. McLean, 2010 BCSC 64], Punnett J. followed Coish v. Walsh, 2001 NFCA 41, 203 Nfld. & P.E.I.R. 226 [Coish], where Wells C.J.N. addressed the issue of whether independent advice rebuts the presumption of undue influence as follows:

[23] The trial judge also correctly set forth the law respecting the manner in which such a presumption may be rebutted. In particular, he identified, from the comments of Green J., in [Fowler Estate], factors to be taken into account in considering whether or not evidence of legal advice given to the granting party is sufficient to rebut the presumption. At paragraph 24 of [Fowler Estate], Green J. identified factors which may affect the character of legal advice to be as follows:
1. Whether the party benefiting from the transaction is also present at the time the advice is given and/or at the time the documents are executed.
2. Whether, though technically acting for the grantor, the lawyer was engaged by and took instructions from the person alleged to be exercising the influence.
3. In a situation where the proposed transaction involves the transfer of all or substantially all of a person’s assets, whether the lawyer was aware of that fact and discussed the financial implications with the grantor.
4. Whether the lawyer enquired as to whether the donor discussed the proposed transaction with other family members who might otherwise have benefited if the transaction did not take place.
5. Whether the solicitor discussed with the grantor other options whereby she could achieve her objective with less risk to her.

What advice is adequate to rebut the presumption of undue influence will depend on the circumstances of the case. The lawyer or notary must give sufficient advice to be satisfied that the client understands the nature and effect of the transaction and is acting voluntarily. The lawyer or notary may also need to give advice on the merits of the transfer.

Mr. Justice Groves found that the advice the notary public gave to Regina Delac was inadequate to rebut the presumption of undue influence. He wrote:

[125] In this case, each of the 5 factors from Coish suggests that the advice Mr. Tin provided to Regina was completely inadequate and insufficient to rebut the presumption of undue influence. Marko was either nearby or in the car at the time the advice was given. He orchestrated and oversaw the entire process. Mr. Tin asked very few questions, did not know Regina had a daughter or a will, and provided no “objective advice” on the merits of the transaction. He did not inform himself of the circumstances in which the transaction was taking place nor of the motivations behind it.