Sunday, February 27, 2011

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.


Paul McLaughlin said...

It's nice to see the Supremes base a decision on law and not social policy. This is a clear, definitive, succinct result that does not introduce more fuzziness than it resolves.

Anonymous said...

What about the division of assets among same sex couples? Is the legislation adequate here or does the resulting trust still have a role to play?

Stan Rule said...

In British Columbia, the Family Relations Act applies to same-sex couples who are legally married to each other. Unmarried same-sex couples may rely on unjust enrichment.

The law of B.C. currently treats married couples differently than unmarried couples, but no distinction is made between same-sex and opposite-sex relationships.