Saturday, March 05, 2011

Kerr v. Baranow

On the breakdown of an unmarried couple’s relationship in British Columbia, disputes about property are often decided on the basis of unjust enrichment. One party may make a claim that she enriched the other through labour or money, that she suffered a corresponding deprivation, and that there is no juristic reason that the other should retain the benefits. Sometimes each party makes a claim against the other in unjust enrichment.

For most couples, each person benefits the other. How should a court deal with mutual benefits? How can each person’s contributions be quantified, especially in a long-term relationship where one may contribute more money to the relationship, but the other may contribute more to managing the household or raising the children? What if the contributions are roughly equal, but one person accumulates more wealth as a result during the relationship than the other?

The courts may make a monetary award for unjust enrichment, in other words require the person who has benefit to make a payment to other. Or if the person making the claim shows a sufficient connection between his or her contributions and specific property, or if for some other reason a monetary award is not adequate compensation, the court may give the claimant an interest (referred to as a remedial constructive trust) in specific property the title to which was or is owned by the person who has benefited from the claimant’s contributions.

If the court makes a monetary award, must the court calculate the award on the basis of what the claimant’s contributions would cost (value received)? Or may the court consider how the person benefiting from the claimant’s contributions wealth has been enhanced (value survived). For example, in a marriage-like relationship, one person may stay at home, focusing her efforts on maintaining the household and raising the children, while the other may focus on building a successful business, perhaps worth millions of dollars. On the breakdown of the relationship, if the person who has expended her efforts on the home and the family makes a claim in unjust enrichment, and the court grants her a monetary award, is the award based on the cost of hiring a nanny and a housekeeper? Or may the award reflect the fact that her efforts allowed her domestic partner to focus on building a multi-million dollar business, in which case she may be entitled to a portion of the value of the business?

In the recent Supreme Court of Canada decision in Kerr v. Baranow, 2011 SCC 10, Mr. Justice Cromwell for the Court set out an analytical framework for determining unjust enrichment cases in the context of a joint family venture. If the couple were engaged in a joint family venture, the court may find that one party has been unjustly enriched on the basis that he or she has retained a disproportionate share of the accumulated wealth. A disproportionate share means a share that is disproportionate to that person’s contributions when compared to the other’s contributions.

Mr. Justice Cromwell identified several factors that the courts should consider when deciding if the couple was engaged in a joint family venture. These are whether the couple made mutual efforts, working collaboratively towards common goals, the extent to which their financial affairs were integrated, their actual intentions to share (or not to share) and the priority they gave to the family in their decisions.

A monetary award is not limited to the calculation of the cost of services or other contributions made by the person making the claim in unjust enrichment. Where the court finds that there was a joint family venture, it is appropriate to consider the enhancement to the other person’s wealth (the value-survived approach). Mr. Justice Cromwell wrote at paragraph 100:

1. The monetary remedy for unjust enrichment is not restricted to an award based on a fee-for-services approach.

2. Where the unjust enrichment is most realistically characterized as one party retaining a disproportionate share of assets resulting from a joint family venture, and a monetary award is appropriate, it should be calculated on the basis of the share of those assets proportionate to the claimant’s contributions.

3. To be entitled to a monetary remedy of this nature, the claimant must show both (a) that there was, in fact, a joint family venture, and (b) that there is a link between his or her contributions to it and the accumulation of assets and/or wealth.

4. Whether there was a joint family venture is a question of fact and may be assessed by having regard to all of the relevant circumstances, including factors relating to (a) mutual effort, (b) economic integration, (c) actual intent and (d) priority of the family.

The fact that there are mutual or reciprocal benefits will not be considered when determining whether the claimant enriched the other person and suffered a corresponding deprivation. It may be considered on the question of whether there is a juristic reason for the enrichment, but will usually be considered in determining the remedy, or the extent of the remedy. The defendant in an unjust enrichment claim will be entitled to a set off benefits received by the claimant when the court assesses the amount of any award to the claimant. The Supreme Court of Canada endorsed the approach taken by Madam Justice Huddart in the British Columbia Court of Appeal in Wilson v. Fotsch, 2010 BCCA 226, which I discussed in an earlier post.

As I understand the analysis in Kerr, if over a twenty-year relationship, each person makes roughly equal contributions to the joint family venture, but one of them retains 90 percent of the wealth they accumulate as a result of their joint efforts during that period, and the other only 10 percent, then the person with only 10 percent will be entitled to be compensated so that he or she ends up receiving half of the accumulated wealth. If the contributions are unequal, then the award will reflect the unequal contributions.

As a lawyer who practices estate litigation, I am naturally interested in how this decision may apply to my practice. Although Kerr deals with the breakdown of a marriage-like relationship, that analysis should apply where one domestic partner dies without making provision for the other. The survivor could bring a claim in unjust enrichment against the personal representative of the deceased’s estate for a monetary award out of that estate, or where assets flow to beneficiaries outside of the estate against those beneficiaries, in which case the survivor would seek a remedial constructive trust. The claimant could assert a claim to a share of the wealth the deceased had retained on his or her death that was generated by the joint family venture. If the survivor brings a claim under the Wills Variation Act to vary the deceased's will, the court may apply the analysis in Kerr when determining the deceased's legal obligations to the claimant as part of the court's analaysis of what provision would be adequate, just and equitable in the circumstances.

This analysis may also apply to relationships other than marriage-like relationships, if the hallmarks of a joint family venture exist. For example, in some circumstances family members such as siblings or parents and children might integrate their financial affairs and work collaboratively toward common goals, with an intention of sharing the wealth they accumulate.

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