Moore v. Sweet

On November 23, 2018, the Supreme Court of Canada released its decision in Moore v. Sweet, 2018 SCC 52, in which the majority imposed a remedial constructive trust on the proceeds of a life insurance policy in favour of the life insured’s former spouse. The life insured, and owner of the policy, Lawrence Anthony Moore, had orally agreed with his former spouse, Michelle Constance Moore, that he would retain her as the beneficiary of his life insurance policy, if she paid the insurance premiums. She did so, paying approximately $7,000 in premiums after her separation from Mr. Moore. He broke his promise to her, by appointing his new common-law spouse, Risa Lorraine Sweet, as the irrevocable beneficiary. The policy paid out $250,000. At death, Mr. Moore’s estate was insolvent.

These facts raised some interesting issues of law and policy. Both Ms. Moore and Ms. Sweet were innocent parties. There is no question that Ms. Moore could sue his estate for his breach of the agreement, but that would be a hollow victory, given that the debts of his estate exceeded the assets. In order for her to receive what she bargained for, the proceeds of the life insurance proceeds, she would need to persuade the court to impose a trust on the proceeds, but on what basis? In Canada, constructive trusts are most frequently imposed when someone proves that another has been unjustly enriched. This is not the only basis on which a constructive trust may be imposed: it may be imposed when someone has acted wrongfully. In other words, it may be imposed on someone who holds property in circumstances when it is against good conscience for them to do so. I would argue that constructive trusts may also be imposed in other circumstances.

Ms. Moore was initially successful, but the majority of the Ontario Court of Appeal reversed the application judge’s decision. The Court of Appeal held that she was limited to receiving the amount of the premiums she paid. She appealed to the Supreme Court of Canada, the majority of which based its decision on unjust enrichment, holding that it would be unjust for Ms. Sweet to retain the insurance proceeds.

To succeed in a claim of unjust enrichment, Ms. Moore need to prove that Ms. Sweet was enriched, that Ms. Moore suffered a corresponding deprivation, and that there was no juristic reason for the enrichment. Madam Justice Cote, for the majority, found both that Ms. Sweet was enriched by the receipt of the insurance proceeds, and that Ms. Moore suffered a corresponding deprivation, having paid the premiums. It is not necessary that the enrichment be the same amount as the deprivation, nor, Madam Justice Cote wrote, does “the corresponding deprivation element…require that the disputed benefit be conferred directly by the plaintiff on the defendant.”

Much of the controversy in this case revolved around the third element: whether there was a juristic reason for the enrichment. The approach mandated by the Supreme Court of Canada decision in Garland v.Consumers’ Gas Co., 2004 SCC 25, is to consider first whether the defendant is entitled to retain the benefit on the basis of an established category for juristic benefit, such as a gift, a statutory, common law or equitable obligation. For example, if I give you a $100 as a birthday present, you are enriched and I have suffered a corresponding detriment, but my intent to make a gift is a juristic reason that you are entitled to retain the $100. Similarly, there is a juristic reason for the government to retain my taxes, namely the legislation pursuant to which I am required to pay the taxes. The burden is on the person making the claim to show that there is no juristic reason in accordance with an established category. If not, the person defending the unjust enrichment claim may then show that there is some other reason he or she should be able to retain the benefit which may include the expectations of the parties and public policy.

In this case, the insurer was required to pay the proceeds to Ms. Sweet in accordance with the Insurance Act, which includes protections of the proceeds against creditors of the deceased. Are the provisions of the legislation a juristic reason for Ms. Sweet’s enrichment? The minority thought so; the majority not.

Madam Justice Cote distinguished between the obligations of the insurer to pay out the proceeds to the designated beneficiary and the right of the beneficiary to retain the proceeds as against the claimant, in this case, Ms. Moore. She wrote:

[73]                          Accepting that contractual rights to claim policy proceeds can exist outside of the Insurance Act, can an irrevocable designation under the Insurance Act nonetheless constitute a juristic reason for Michelle’s deprivation? In my view, it cannot. This is because the applicable statutory provisions do not require, either expressly or implicitly, that a beneficiary keep the proceeds as against a plaintiff, in an unjust enrichment claim, who stands deprived of his or her prior contractual entitlement to claim such proceeds upon the insured’s death. By not ousting prior contractual or equitable rights that third parties may have in such proceeds, the Insurance Act allows an irrevocable beneficiary to take insurance money that may be subject to prior rights and therefore does not give such a beneficiary any absolute entitlement to that money (Shannon, at p. 461). Put simply, the statute required that the Insurance Company pay Risa, but it did not give Risa a right to keep the proceeds as against Michelle, whose contract with Lawrence specifically provided that she would pay all of the premiums exclusively for her own benefit. Neither by direct reference nor by necessary implication does the statute either (a) foreclose a third party who stands deprived of his or her contractual entitlement to claim insurance proceeds by successfully asserting an unjust enrichment claim against the designated beneficiary — whether revocable or irrevocable — or (b) preclude the imposition of a constructive trust in circumstances such as these (see Central Guaranty Trust Co. v. Dixdale Mortgage Investment Corp. (1994), 24 O.R. (3d) 506 (C.A.); see also KBA Canada).

[74]                          On this basis, the applicable Insurance Act provisions are distinguishable from other legislative enactments that have been found to preclude recovery, such as valid statutory provisions requiring the payment of taxes to the government (see GST Reference, at pp. 476-77; Zaidan Group Ltd. v. London (City) (1990), 71 O.R. (2d) 65 (C.A.), at p. 69, aff’d [1991] 3 S.C.R. 593). In that context, the plaintiff’s unjust enrichment claim must fail because the legislation permits the defendant to be enriched even when the plaintiff suffers a corresponding deprivation. The same cannot be said about the statutory framework at issue in this case, however; there is nothing in the Insurance Act that justifies the fact that Michelle, who is contractually entitled to claim the policy proceeds, is nevertheless deprived of this entitlement for Risa’s benefit. 

Madam Justice Cote held that there were no other juristic reasons for the enrichment.

Mr. Justice Gascon, writing for the minority dissent, would have held that the provisions of the Insurance Act constituted a juristic reason for Ms. Sweet’s enrichment. The designation was made in accordance with the Insurance Act, which also provided protections from creditors for an irrevocable beneficiary. It was his view that Ms. Moore’s claim was purely contractual, and she had no equitable claim to the proceeds. She had a claim against Mr. Moore’s estate in contract, but a contractual claim was insufficient grounds for the court to impose a constructive trust in unjust enrichment. Mr. Justice Garson emphasized the importance of certainty if that the legislation provides.

I should note that Madam Justice Cote declined to consider whether a good conscience constructive trust for wrongful acts could have also been imposed (I think it could), or whether there were other categories of constructive trust.

The result is that Ms. Moore is entitled to the insurance proceeds.

MacKinnon v. Donauer

There is no shortage of court cases in British Columbia of informal family arrangements going awry. A parent may assist a child and the child’s spouse in purchasing a home with the expectation of sharing the home. The idea may make good sense. Unfortunately, neither side may consider what will happen if the arrangement doesn’t work out. In the case I am about to write about, MacKinnonv. Donauer, 2017 BCCA 437, for example, Madam Justice Newbury, noted at paragraph 3,

As is usually the case in family arrangements of this kind, none of the parties sought legal advice, and no one seems to have considered various contingencies that could arise in the parties’ lives or in their relationship.

Fortunately, the courts do have a fair amount of flexibility in fashioning a remedy consistent with what the parties may have reasonably expected had they turned their minds to the potential problems that might arise. Unfortunately, by the time the matter gets to court, the parties may spend a hundred times as much in legal expense than what they would have spent if each had received independent advice and entered into a formal agreement.

Joy MacKinnon paid $150,000 to her daughter, Tina Maria Donauer, and her daughter’s husband, Michael Donauer, toward the purchase of a home. In return the Ms. MacKinnon and her husband (who later died in 2013), moved in to the new home to live in the basement suite. The understanding among the parties was that Ms. MacKinnon would be entitled to live in the suite indefinitely without paying rent. She was 58 years old when she contributed the funds toward the purchase and moved into the suite,

She lived in the suite for about 9 years. She contributed $28,500 towards some of the property expenses. Following a disagreement with her daughter and son-in-law, Ms. MacKinnon moved out of the suite in January, 2015.

Ms. MacKinnon sued her daughter and son-in-law, claiming a 29 percent interest in the home on that basis that she contributed 29 percent of the purchase price. She claimed the interest on a resulting trust, or, alternatively, unjust enrichment. The trial judge dismissed her claim for an interest in the home, but awarded her $28,500 for the funds she contributed to the expenses. The trial judge found that she did not prove her claim in either resulting trust or unjust enrichment.

Ms. MacKinnon appealed to the British Columbia Court of Appeal, which overturned the trial judge’s decision in respect of the initial contribution of $150,000. Madam Justice Newbury held that on the facts, Mr. and Mrs. Donauer would be unjustly enriched if they were allowed to retain the full benefit of Ms. MacKinnon’s initial $150,000 contribution. They were enriched by her contribution, she suffered a corresponding deprivation, and there was no juristic reason for the enrichment. Madam Justice Newbury held that the family arrangement did not constitute a juristic reason for the enrichment as the trial judge had found, However, Ms. MacKinnon also received the benefit of living in the suite for nine years, without contributing to the full rental value.

Madam Justice Newbury wrote:

[45]         It seems to me that the appropriate analysis emerges if one imagines a situation in which after a short period of living with Ms. MacKinnon under the family arrangement, the Donauers had expelled her from their home. In that event, I suspect a court would have little difficulty in finding that the defendants had been unjustly enriched – i.e., that it would be unjust for them to retain the full $150,000. Ms. MacKinnon would be found to have a reasonable expectation of some remedy – despite the existence of a family arrangement. It was, of course, Ms. MacKinnon who chose to leave – and not, if I may say so, for any reason that would withstand objective scrutiny. Was it reasonable for her to expect she could unilaterally bring the arrangement to an end and claim a proprietary interest in McClure, with the resulting disruption of a forced sale? It is difficult to say she was “prejudiced” by her own decision to leave. On the other hand, would it be reasonable for the defendants to expect to retain the entire benefit of the funds and their appreciation in the real estate market?

[46]         Considering objectively what the parties could have reasonably expected in light of all the circumstances when they entered into the family arrangement, I believe the trial judge erred in ruling that it constituted a juristic reason that justified the Donauers’ retaining the entire benefit of Ms. MacKinnon’s funds. At the same time, the fact the Donauers accommodated her in their home for over nine years and thus provided a benefit to her must be taken into account in fashioning the appropriate remedy for the enrichment. (As the Court stated in Kerr [v. Baranow, 2011 SCC 10], ‘mutual benefit conferral’ is generally to be taken into account at this “remedy stage” of the analysis: see para. 109.)

Madam Justice Newbury considered that a financial award would be appropriate in the circumstances. In arriving at a formula for calculating the award, she took into account the nine years Ms. MacKinnon lived in the suite by directing that the value of a 29 percent interest as at the date of trial, be reduced by a fraction representing the nine years she was in the suite over her life expectancy when the home was purchased. Madam Justice Newbury wrote:

[48]         In normal circumstances, I would calculate a money judgment with reference to Ms. MacKinnon’s life expectancy when she was 58 years old. I would multiply 29% of the fair market value of the house at the date of trial by a fraction the denominator of which would be the number of years the Donauers could have expected Ms. MacKinnon to be in the house from 2005 on, and the numerator of which would be that number minus nine. I would then adjust for contingencies arising on the evidence that was before the Court at trial, including the contingency she would have left the suite during her lifetime – for health reasons, for example. 

[49]         Unfortunately, there is no evidence before us of the life expectancy of women of the plaintiff’s age in 2005, nor of the market value of McClure as at the date of trial. I would therefore allow the appeal and direct counsel to attempt to determine that market value as at the trial date and Ms. MacKinnon’s life expectancy in 2005, and then to calculate the amount of a judgment in accordance with the foregoing – or to settle upon some other amount. If they are unable to determine or agree upon a figure within 60 days of the date of this court’s order, either party shall be at liberty to return to the Supreme Court of British Columbia, which shall determine an amount in accordance with these reasons.

I have tried working through the formula using made-up values. Say the house was worth $1 million at trial. The value of a 29 percent interest would be $290,000. If her life expectancy in 2005 were 27 years, then she would receive two-thirds of $290,000, which is $193,333. Again, I made these values up, and I don’t know what Ms. MacKinnon will receive in addition to the $28,500, which the Court of Appeal did not disturb. 

Court of Appeal Dismisses Appeal in Scholz v. Scholz

In reasons for judgment released on June 23, 2013, the Court of Appeal dismissed Ruth Scholz's appeal in Scholz v. Scholz, 2013 BCCA 309.

The claim is about a family conflict arising from the construction of a coach house by the plaintiff on land owned by her son and daughter-in-law. When the plaintiff's son and daughter-in-law sold the property, she sought a share of the sale proceeds. The trial judge rejected her claims in resulting trust, finding that she did not contribute funds to the initial purchase of the property. He also rejected her claim in unjust enrichment finding that the coach house did not add any value to the property.

The trial judge did make a modest award to the plaintiff on the basis of an imputed family arrangement. Although the plaintiff and her son and daughter-in-law did not have an agreement as to what would happen if the land were sold, the trial judge made an award on the basis of what the parties reasonable expectations would have been had they set their minds to this issue. He reasoned that they would likely have agreed that she should receive some compensation for the expense in constructing the coach house. To quantify the compensation he took her initial expenses and then depreciated that amount by 10 per cent each year on a declining balance to reflect the benefit she received occupying the house.

I have summarized the facts in greater detail on my post about the trial decision here, and I suggested in that post that the trial judge, Mr. Justice Saunders' approach was novel in British Columbia.

Madam Justice Neilson writing for the Court of Appeal essentially agreed with all aspects of the trail judge's decision.

The "imputed family arrangement" may be a developing type of claim in British Columbia.

Brennan v. Gardy Estate

I have written about a few of the cases in which a family member or friend has made a successful claim against the estate of a person for personal care or other services that they had given him or her (see for example this post here). These are claims in unjust enrichment. On what basis do the courts distinguish between those services that should be compensated, and those that should not?

To succeed the plaintiff must show that the now deceased person was enriched, that the plaintiff suffered a corresponding deprivation, and that there is no juristic reason for the enrichment.

What does this mean? Enrichment and corresponding deprivation are straightforward enough. The now deceased person benefited from the plaintiff’s labour or expenditures. But what is the absence of a juristic reason? I won’t try to define it here, nor will I quote the somewhat abstract language the courts have used in describing it. But a case from last year, Brennan v. Gardy Estate, 2011 BCSC 1337, provides one example of a juristic reason for unjust enrichment.

Rod Brennan and Julien Gardy became very close friends after Mr. Brennan moved into Mr. Gardy’s basement suite in 2000. Mr. Brennan had no home, and was on social assistance. Mr. Brennan’s sister asked Mr. Gardy if her brother could move into his suite for a few months, and Mr. Gardy, out of kindness agreed. Although originally intended as temporary accommodation, Mr. Brennan lived in the suite until Mr. Gardy’s death in 2009.

Mr. Brennan offered to pay rent, and they agreed that he would pay $200 per month to cover utilities, substantially below the market rental value of the suite. In some months, Mr. Gardy did not collect any rent from Mr. Brennan.

Mr. Gardy was sedentary, obese, extremely untidy, and required dialysis. Mr. Brennan attempted to clean up, persuade Mr. Gardy to eat healthy foods and exercise more. One witness described them as being “like the odd couple.” Mr. Brennan did a considerable amount of work keeping up the yard.

Madam Justice Fenlon found that Mr. Brennan “has met the threshold of establishing a substantial benefit to the deceased. Mr. Brennan functioned as a helper around the house: for eight years he did odd jobs, did all of the yard work, and found and oversaw trades, work which would have cost the deceased money to have done otherwise.”

Although Mr. Brennan established an enrichment and a corresponding deprivation, Madam Justice Fenlon held that Mr. Gardy was not unjustly enriched. Mr. Brennan had a “donative intent” or in other words, his services were gifts in the context a mutual giving friendship, which was a “juristic reason for the enrichment.” She wrote at paragraphs 30-32:

[30] Rather, I find that Mr. Brennan provided the services he did with a donative intent. To be more precise, each friend gave to the other what was in his power to give as an expression of a true and abiding friendship. As time passed and their friendship deepened, so did the extent of their mutual giving. Karen Ann Buckner and Alana Cobza frequently saw the deceased giving rolled up balls of cash to Mr. Brennan. Mr. Brennan admitted that the deceased regularly bought groceries and gas for him and gave him gifts of money. Mr. Gardy never charged rent in December so that Mr. Brennan would have money to buy Christmas presents, and he would often return to Mr. Brennan, by way of gifts of cash, all of the rent paid in a given month.

[31] Mr. Brennan acknowledged that he did not expect to be compensated for the services he provided to the deceased. Nor did he expect to receive a benefit from the deceased’s estate after his death. In his testimony, John Anderson, who is a retired psychologist, described the relationship of Mr. Brennan and Mr. Gardy as one of “mutual caretaking”. He said that it was the most extreme case he had observed, and that he had never seen two people give each other as many gifts, cards and trinkets such as hat pins, “little things that they both treasured”.

[32] Having considered all of the evidence, and in particular the sincere and moving testimony of Mr. Brennan, I have concluded that he gave freely and generously of his time and skills and received in turn gifts of money, reduced rent, meals, entertainment and other financial assistance. In short, this was a case of mutual giving arising out of a close mutual friendship.

Mr. Brennan was successful in part. Madam Justice Fenlon held that he did not owe Mr. Gardy’s estate $10,000 that Mr. Gardy had given to another to invest for Mr. Brennan. Although Mr. Brennan had signed a promissory note for $10,000 plus interest, Madam Justice Fenlon found that Mr. Gardy had forgiven the note, and had not intended to collect the funds.

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.

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

Defences
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.

Costs Award in Gould v. Royal Trust

Barbara Gould applied to vary the will of her late mother, Sylvia Gould, under the Wills Variation Act. The Court ruled against her on that issue, but did award her $75,000 out of her mother’s estate for unjust enrichment for the care she provided to her mother, and the funds she expended on her. I wrote about this decision here.

In British Columbia, the court usually awards the successful party court costs against the unsuccessful party. What happens in a case like this where Barbara Gould’s brothers were successful as beneficiaries of their mother’s will in defending the Wills Variation Act claim, but Barbara Gould was successful in her claim for unjust enrichment?

Although in most cases the court will determine who was substantially successful, and award that party his or her costs, the court may apportion costs where the court finds that success was divided between the parties.

Mr. Justice Pearlman, in Gould v. Royal Trust Corp. of Canada, 2010 BCSC 16, released on January 8, 2010, found that it was appropriate to apportion costs between the plaintiff, on the one hand, and her brothers, on the other. There were two separate and discrete issues in the lawsuit: the Wills Variation Act claim, and the unjust enrichment claim. The court could weigh the approximate amount of time spent on each issue, and the relative importance of each issue to the parties. Apportionment would be just in this case.

Applying these criteria, Mr. Justice Pearlman wrote:

[28] In my view, taking into account not only the allocation of trial time between the two discrete issues in this litigation, but also the relative importance of those issues to the parties, a fair apportionment of costs is 30 percent to the plaintiff and 70 percent to the personal defendants. That apportionment produces a just result in so far as it reflects the plaintiff’s partial, but limited success at trial, and also recognizes the measure of success achieved by the personal defendants in opposing the Wills Variation Act claim.

[29] The plaintiff is entitled to 30 percent of her costs assessed at Scale B from the personal defendants and the personal defendants are entitled to 70 percent of their costs assessed at Scale B from the plaintiff.

These Scale B costs do not reflect the full amount each party’s legal fees and expenses, but are determined according to tariffs under the Supreme Court Rules.

The executor, Royal Trust Corp. of Canada, which played a neutral role in the lawsuit, is entitled to be fully indemnified for its reasonable legal expenses out of Sylvia Gould’s estate.

Gould v. Royal Trust Corp. of Canada

One of the factors the Supreme Court of British Columbia may consider in a claim by a child to vary her parent's will is whether the parent has made other provision for her during the parent’s life.

In a recent case, Gould v. Royal Trust Corp. of Canada, 2009 BCSC 1528, Mr. Justice Pearlman refused to vary Silvia Gould’s will even though she made little provision in her will for her daughter, Barbara Gould.

In her will, Silvia Gould left some silver, jewelry, paintings and personal effects to her daughter, but left the residue of her estate, worth a net amount of approximately $900,000, to her three sons. She provided her reasons for not leaving anything in her will to her daughter. She and her daughter were at the time she made the will, joint tenants on a recreational property in Ontario. Barbara Gould would receive the property by right-of-survivorship on Silvia Gould’s death. Silvia Gould wrote in her will that Barbara Gould would receive a roughly equal inheritance to each of her brothers.

Before Silvia Gould died she had transferred her interest in the vacation property to her daughter as a gift. At trial the property was worth $210,000 according to an appraisal.

Mr. Justice Pearlman held that Silvia Gould’s reasons for leaving the residue of her estate to her three sons—that her daughter would receive the vacation property—were rational and valid. In light of the gift of the vacation property to her daughter, Silvia Gould’s dispositions in her will “falls within the range of acceptable dispositions made by a judicious parent in the fulfillment of her moral obligation to the plaintiff as one of the four adult children.” Mr. Justice Pearlman then wrote: “Because I am satisfied that the testatrix [Silvia Gould] made just, adequate and equitable provision for the plaintiff and met her moral claim, the testamentary autonomy of the testatrix is entitled to deference.”

Barbara Gould was, however, entitled to an award of $75,000 for her expenses and the care she provided her mother during the last few years of her mother’s life. Mr. Justice Pearlman awarded the $75,000 for unjust enrichment.

Silvia Gould’s three sons opposed the claim for unjust enrichment in part because Barbara Gould had removed their mother from British Columbia to Guatemala at a time when their mother had dementia, and did not have capacity to consent. She did so without telling her brothers, and despite the fact that her mother had made one of her brothers her representative under a representation agreement.

Although Mr. Justice Pearlman was critical of Barbara Gould’s conduct, he found that she did spend funds on her mother, and took good care of her. She had a reasonable expectation that her mother’s resources would be used for her expenses. Her mother would have had to incur similar expenses if she had remained in British Columbia.

Accordingly Mr. Justice Pearlman found that Barbara Gould had met the criteria for proving unjust enrichment.

[Since I wrote this post, the British Columbia Court of Appeal dismissed Barbara Gould's appeal. See my update here.]

Unjust Enrichment and Constructive Trusts Article

Last November I was one of the speakers at a Continuing Legal Education Course on estate litigation. The Continuing Legal Education Society of British Columbia has posted my paper here.

Threshold of Services Required to Succeed in an Unjust Enrichment Claim

I have written a few posts about estate claims by family or friends who had provided care or other services to the now deceased person in the expectation that they would receive a substantial portion of the deceased’s estate. When those expectations have been disappointed, they have sued.

You can read a couple of posts about people who have been successful in this type of claim based on the principles of unjust enrichment here and here.

It is important to recognize though that not all estate claims for care or other services are successful. The courts in British Columbia require that the person making the claim establish that the amount of care or other services reach a minimum threshold to succeed.

For example, in Strudwick v. Morrison, (1996), 21 R.F.L. (4th) 185 (B.C.S.C), the court dismissed the Plaintiff’s unjust enrichment claim against his step-mother’s estate. He had worked part-time as a teenager on his family’s farm. The Plaintiff’s father had left the farm to the Plaintiff’s step-mother. On her death, the step-mother left her estate to her own children. Mr. Justice Blair, while acknowledging that the result might be unfair to the Plaintiff, found that the Plaintiff’s contributions to the farm were not of sufficient consequence to support a successful unjust enrichment claim.

Blake v. Wells Estate

A mother allows her son and her son’s spouse to build a house on her land. She lives in another house on the land. The land is not subdivided, and remains in the mother’s name. This kind of circumstance is not unheard of. It can create a host of problems.

In Blake v. Wells Estate, 2007 BCCA 617, Isabel Well’s son, Rowan Wells and his then common law spouse, Patricia Blake (they later married), built a house on Ms. Well’s 14 acre land (the “Malahat”). They moved in together in their new house in 1972. Isabel Wells had her own house on the Malahat. Ms. Blake put some funds, and her labour into the construction of the house, and later to the maintenance of the property.

Rowan Wells died in 1993. Ms. Blake continued to live in the house. Ms. Wells lived in her house, independently, until 2003, when she moved to Victoria after breaking her arm. Ms. Wells died in 2004.

While they were living on the Malahat, Ms. Wells told at least one person that if they ever had to sell the Malahat, Ms. Blake would be looked after.

In her will, Ms. Wells left the Malahat to daughter, Doreen Ross. She left Ms. Blake one-seventh of the residue of her estate. Ms. Blake’s share was worth a little over $40,000. The Malahat was worth approximately $1.2 million.

Ms Blake sued the executors of Ms. Wells’ will, claiming that Ms. Wells had been unjustly enriched. To succeed, Ms. Blake was required to prove that Ms. Wells or her estate benefitted from Ms. Blake’s labour and money, that Ms. Blake suffered a corresponding deprivation, and that there was no juristic reason for the benefit.

Ms. Blake sought either an interest in the Malahat through the imposition of a constructive trust, or alternatively a sum of money.

The trial judge found that Ms. Blake established an unjust enrichment. He found that a monetary award would adequately compensate her, and awarded her $250,000.

On appeal, the Court of Appeal agreed that Ms. Wells had been unjustly enriched, but reduced the award to Ms. Blake to $125,000 (in addition to the funds Ms. Blake receives under Ms. Well’s will).

Why did the Court of Appeal reduce the award? It is apparent that they did not consider the notional costs of Ms. Blake’s labour and expenditures, or the value received by Ms. Wells, to be in the neighbourhood of $250,000 to $300,000. Mr. Justice Chiasson did not elaborate on why the Court of Appeal interfered with the trial judge’s decision. He wrote,

Assessing damages in the circumstances of a case like this cannot be precise. An expectation to be taken care of is highly subjective and dependent on the circumstances of the parties. The appellants contend that an award of $40,000 would amply compensate Ms. Blake. In my view, that sum would not take into account all of the factors of benefit to the estate of Isabel Wells or reflect an expectation that Ms. Blake would be taken care of. Considering that Ms. Blake is entitled to a sum reflecting the expectation that she would be taken care of, I would assess her recovery at $125,000 in addition to the one-seventh interest she has in the residue of the estate.

But, Ms. Blake gave up the opportunity to build equity in her own home and property. If she had bought her own home back in the 1970s, she would have ended up with significantly more than what the Court of Appeal awarded her.

The Court of Appeal could have considered the value of the Malahat (the “value survived” approach), as well as the “value received” approach to a monetary award. See Pickelein v. Gillmore, (1997) 30 B.C.L.R. (3d) 44 (CA), in which the Court of Appeal held that the value survived approach was appropriate to a monetary award in an unjust enrichment claim by a common law spouse. But, it does not appear that the Court of Appeal took the value of the Malahat into consideration when the Court reduced the award.

I note that in other cases, the Court of Appeal has said that trial judges have considerable discretion in determining the quantum of unjust enrichment awards. It would have been helpful if the Court of Appeal had more fully articulated its reasons for interfering with the trial judge’s award in this case.

Does the Presumption of Resulting Trust Apply to Land in British Columbia?

If A transfers an asset to B, or purchases an asset in B’s name, there is a presumption that B holds the title to the asset for the benefit of A. Lawyers call this the presumption of resulting trust. This presumption applies where one person transfers funds into a joint bank or investment accounts with another.

But, section 23(2) of the Land Title Act, RSBC 1996, c. 250, says (to simplify the language somewhat) that the title to land is “conclusive evidence at law and in equity” of ownership. There are a few exceptions listed in this section, but none deal with trusts.

The British Columbia courts have said that section 23(2) of the Land Title Act creates a presumption that the title reflects the interests of the title holders. But, this presumption can be rebutted.

Accordingly, where one person pays for the land, but puts title in the name of another, there appear to be two conflicting presumptions. There is the presumption of resulting trust, that the title holder holds the land for the benefit of the person who paid the purchase price. There is the presumption under the Land Title Act, that the registered owner has an absolute interest in the land.

In a recent case, Sidhu v. Adams-Amaya, 2007 BCSC 1698, Mr. Justice Halfyard discussed both of these presumptions.

The plaintiff, Mr. Mohinder Sidhu, and the defendant, Ms. Daiza Judhit Adams-Amaya, held title to a house together as joint tenants. The plaintiff had the funds for the down payment, but did not qualify for a mortgage on his own. He contributed $34,700 directly to the down payment, and transferred another $34,700 to the defendant, which she contributed to the down payment. The defendant also contributed a further $1375 from her own funds toward the down payment. They borrowed a further $190,000 together to complete the purchase.

When they purchased the house, the plaintiff had hoped that the defendant would marry him. His hope was not reciprocated, and ultimately they ended up in a court dispute about who was entitled to the house. By then, the house increased in value to about $380,000.

Mr. Justice Halfyard held that the defendant was entitled to a beneficial interest in the house. In addition to her modest contribution of $1375 to the down payment, she assumed responsibility as a co-signer on the mortgage. She also contributed to improvements on the property and other expenses. Mr. Justice Halyard held that the plaintiff had not rebutted the presumption created by section 23(2).

On the other hand, Mr. Justice Halfyard found that the plaintiff did not intend to make a gift of the $34,700 he transferred to the defendant. He applied a presumption of resulting trust to the transfer of funds. The defendant failed to rebut the presumption. Mr. Justice Halfyard found that the reason for the transfer was that she needed to make a contribution to qualify for the financing.

Mr. Justice Halfyard ordered that the plaintiff would be paid first $64,445, and the defendant the first $8,490, out of the net sale proceeds of the house. (I am not clear on how the court arrived at these amounts, but they appear to represent the funds each of the parties put into the house.) The court ordered that the balance of the net sale proceeds be divided equally.

It is not clear from this decision whether one presumption trumps the other. The court applied both presumptions. The court applied the presumption in section 23(2) of the Land Title Act to the question of whether the defendant was entitled to a beneficial interest in the house. But, court then applied the presumption of resulting trust when determining the extent of the defendant’s entitlement.

The decision may rest on principles of unjust enrichment. Each of the parties contributed to the purchase of the house. Although the plaintiff contributed more financially than the defendant, the plaintiff could not have purchased the property without the defendant co-signing the mortgage. The plaintiff would be unjustly enriched if the defendant were not given an interest in the house and in the increase in value of the house. On the other hand, the defendant would be unjustly enriched by the plaintiff’s significantly greater financial contributions if she were given an equal share of the sale proceeds.

The Wills Variaton Act and Unjust Enrichment

In British Columbia, a child or spouse can apply under the Wills Variation Act to vary their parent or spouse’s will if the deceased did not make adequate provision for the child or spouse. The court considers the deceased’s legal obligation to the child or spouse. Then the court considers any moral obligations the deceased may have owed to the claimant.

Sometimes the claimant may also have a claim in unjust enrichment. To succeed the claimant must prove:

1. that claimant enriched (in other words benefited) the deceased;
2. that the claimant suffered a corresponding depravation (gave up something or contributed labour); and
3. that there is no juristic reason for the enrichment (such as a contract or a gift.)

In a Wills Variation Act claim, the court can take into account any unjust enrichment in deciding whether to vary the will in favour of the claimant.

Wilcox v. Wilcox, 2000 BCCA 491, illustrates how unjust enrichment principles dovetail with the Wills Variation Act. The plaintiff was one of Edith Wilcox’s four children. The plaintiff lived with their mother in a house they owned together from 1970 until Edith Wilcox’s death in 1996. The plaintiff and her mother both contributed financially to the house and household expenses, but the court found that the plaintiff contributed more funds over the years. The plaintiff also provided did the household chores and provided personal care and services to their mother after 1989 when their mother became ill. The plaintiff and her mother’s relationship became strained in about 1993. The plaintiff and her mother held title to the house in a joint tenancy until August 1995, when Edith Wilcox unilaterally severed the joint tenancy. Edith Wilcox also made a new will in December 1995, leaving substantially all of her estate to the plaintiff’s three siblings.

After Edith Wilcox’s death, the plaintiff brought a Wills Variation Act claim. The main asset of the estate was Edith Wilcox’s half-interest in the house. At trial, the trial judge held that Edith Wilcox had been unjustly enriched by the plaintiff’s financial contributions and personal care and services. He imposed a constructive trust on Edith Wilcox’s half-interest in the house in favour of the plaintiff. He also awarded the plaintiff insurance monies in respect of some damage to the house and the sum of $6,500.

On appeal, Madam Justice Saunders agreed that Edith Wilcox was unjustly enriched by the plaintiff’s contributions. The plaintiff had an expectation that she would receive her mother’s interest in the house by right of survivorship. But Madam Justice Saunders also said that the unjust enrichment did not entitle the plaintiff to the entire interest in the house. The extent of the unjust enrichment was more limited. After considering the plaintiff’s legal claim in unjust enrichment, Madam Justice Saunders turned to the plaintiff’s moral claims. She found that the plaintiff had a stronger moral claim than her siblings. On the basis of both the plaintiff’s legal and moral claims, Madam Justice Saunders upheld the award of the house and insurance monies to the plaintiff. She did allow the appeal to the extent of eliminating the award of $6,500 to the plaintiff. Instead, the Court of Appeal held that the small amount of cash in the estate would be divided equally among Edith Wilcox’s four children.

Claims by a Common-law Spouse to Inherited Property on Breakdown of the Relationship

When a common-law relationship breaks down in British Columbia, one common-law spouse may have a claim against the other common-law spouse on the basis of unjust enrichment. To succeed the spouse making the claim must prove three things. She must show that she contributed money, other assets, or services to the other common-law spouse. She must show that the other common-law spouse benefited. Finally, she must show that there is no principled reason to allow the other common-law spouse to keep the benefit without compensating her.

Sometimes the courts will award money (a monetary award), and other times, the courts will award an interest in specific property (a constructive trust) to the contributing common-law spouse.

Can a common-law spouse make an unjust enrichment claim in respect of property the other inherited?

The British Columbia Court of Appeal considered this issue in Hughes v. Miller, 2007 BCCA 116.

Bambii Hughes and Bryan Miller lived in a common-law relationship for twelve years. The trial judge found that during some of those years, Ms. Hughes contributed the larger proportion of their modest living expenses. She also provided care and assistance to Mr. Miller.

Mr. Miller had inherited an interest in some land from his father. During the common-law relationship, Mr. Miller inherited a further interest in the land, and some money from his aunt’s estate. When the parties separated, the land was worth about $ 1.75 million.

The trial judge found that Mr. Miller had been unjustly enriched by Ms. Hughes contributions during their relationship, but did not consider it appropriate to award Ms. Hughes an interest in the land. The trial judge took into consideration the fact that Mr. Miller inherited the land, and Ms. Hughes did not contribute to the acquisition of the land. The trial judge ordered Mr. Miller to pay Ms. Hughes $75,000.

The Court of Appeal agreed with the trial judge’s analysis, but increased the award to $100,000. From the time the Mr. Miller inherited his aunt’s interest in the land to the couple’s separation, the land increased in value by about $300,000. Mr. Justice Hall, in the Court of Appeal, considered it appropriate to award Ms. Hughes of one-third of the increase in value.

Do Family Relations Act Claims Die With a Spouse?

[Since I wrote this post, the Family Relations Act has been repealed and replaced by the Family Law Act, which has significantly changed the law since Zuk Estate was decided.}

Can a separated spouse’s executor or administrator continue a matrimonial lawsuit in British Columbia after the separated spouse dies?

This issue was considered in the recent case of Zuk Estate v. Zuk, 2007 BCSC 300.

Mrs. Sylvia Zuk and her husband Alex Zuk had separated. Mrs. Zuk started a court proceeding in which she claimed a divorce, spousal support and a division of the matrimonial property.

Mrs. Zuk died before the lawsuit was resolved. Mr. and Mrs., Zuk’s matrimonial home was in a joint tenancy at Mrs. Zuk’s death. Accordingly, on Mrs. Zuk’s death, Mr. Zuk acquired sole title to the matrimonial home by right of survivorship.

One of Mrs. Zuk’s children from a previous marriage wished to continue the matrimonial proceeding as the personal representative of Mrs. Zuk’s estate. She acknowledged that the court could not grant a divorce or spousal support. But she argued that she should be allowed to continue the claim for a division of the family assets. She also argued that Mr. and Mrs. Zuk severed the joint tenancy by their conduct.

Mrs. Zuk’s daughter’s lawyer also advised the court that she wished to add trust claims to the lawsuit. But Mrs. Zuk’s daughter had not yet made an application to amend the claim.

Mrs. Zuk’s daughter’s objective was to get a half-interest in the matrimonial home into Mrs. Zuk’s estate.

Mr. Justice Melnick dismissed Mrs. Zuk’s daughter’s claims. Under sections 56 and 57 of the Family Relations Act, RSBC 1996, c. 128, each spouse is entitled to an interest in the other spouse’s family assets on a “triggering event.” The triggering events are a separation agreement, a court declaration that there is no reasonable prospect of reconciliation, an order dissolving the marriage or a judicial separation or an order declaring the marriage void. In this case, there was no triggering event during Mrs. Zuk’s life.

After Mrs. Zuk’s death, her personal representative could not bring an application for a declaration that there was not reasonable prospect of reconciliation. The court could only make such a declaration if the spouses were living.

If there had been a triggering event during Mrs. Zuk’s lifetime, then her personal representative would have been able to proceed with the division of property claim (Fong v. Fong (1981), 25 RFL (2d) 277 (BCSC)). Interestingly, Mrs. Zuk had obtained a declaration that there was no reasonable prospect of reconciliation from a Master, but the declaration was set aside on the grounds that the Master did not have jurisdiction to make the declaration in the circumstances (Zuk v. Zuk, 2006 BCCA 1).

Mr. Justice Melnick also found that the jointure had not been severed. Neither Mr. nor Mrs. Zuk alienated an interest in the joint tenancy. Nor did they agree to sever the joint tenancy. Accordingly, the matrimonial property went to Mr. Zuk by right of survivorship.

Mr. Justice Melnick considered whether Mrs. Zuk’s personal representative could succeed in a resulting or constructive trust claim. He held that she could not succeed. He noted that a constructive trust was a remedy for unjust enrichment. Although Mr. Zuk might have been enriched, and Mrs. Zuk’s estate might have suffered a deprivation, Mr. Justice Melnick held that the joint tenancy was a juristic reason for the enrichment.

I have some concerns about this last part of the decision. The joint tenancy may well be a juristic reason for the enrichment, but I think it would have been preferable if the court declined to consider this claim until it was properly brought, evidence adduced and fully argued.

The law of unjust enrichment developed in Canada to a large extent in the context of claims by common-law spouses who contributed to property held in their common-law spouses name. The courts developed this area of law to fill in a void in provincial property and family law. Were it not for unjust enrichment, common-law spouses who had worked and contributed to, for example, the family farm would have been left with nothing on the breakdown of the relationship.

I think an analagous argument could be made here. Mrs. Zuk’s children may be deprived of an inheritance because of the very technical division of property scheme in the Family Relations Act. There seems to be a void in the law. This might have been an appropriate case to more fully explore an unjust enrichment claim.

Constructive Trusts and the Rights of Creditors

Some of the leading Canadian cases dealing with constructive trusts have arisen out of common-law relationships. One common-law spouse (let’s say the common-law wife) contributed money or work to property owned by the other (the common-law husband). The relationship breaks down. The common-law wife who contributed the money or work sues the common-law husband, claiming that he has been unjustly enriched by her contributions. The court agrees. The court then imposes a constructive trust on the common-law husband’s property, giving the common-law wife an ownership interest. See for example Peter v. Beblow, [1993] 1 SCR 980.

But what if in the above example, the common-law husband has borrowed money from another person. Should the common-law wife’s claim have priority over the creditor? If the court imposes a constructive trust in her favor, she might get priority.

Suppose we take this a step further. The common-law couple is still together. The common-law husband runs into financial difficulty. He has given a lender security over a valuable asset that he held in his name only. The common-law wife says she contributed to the asset, and is entitled to an interest in the asset in priority to the lender.

This was one of the issues in Melchior v. Pricewaterhouse Coopers, 2007 BCSC 136, a recent Supreme Court of British Columbia decision.

Mr. Cable and Ms. Melchior lived in a common-law relationship for about 10 years. Mr. Cable had invented and patented a wood gluing apparatus and process. He also had the majority interest through a holding company in a wood production and sale business: Interact Wood Products Inc. Ms. Melchior also had a smaller interest in the holding company.

Both Mr. Cable and Ms. Melchior were involved in the business. In order to get some capital, Interact Wood Products borrowed $3.5 million from a private lender. He gave a personal guarantee, and gave the lender a security interest in his patent rights.

Sadly, the business failed. Both Interact Wood Products and Mr. Cable personally went bankrupt.

Ms. Melchior asserted a claim in the bankruptcy proceedings to an interest in the patent rights. She claimed that Mr. Cable held the rights as a resulting or constructive trustee for her. If she were successful, she would have the rights of a co-owner to the patent. She could set up another operation with Mr. Cable’s assistance, and use the patent rights. She could use the patent and compete against a co-owner.

One of the arguments Ms. Melchior made was that Mr. Cable, and his creditors, was unjustly enriched by her efforts in the business. To succeed she needed to prove the following:
1. Mr. Cable and his creditors were enriched by her work;
2. She suffered a corresponding deprivation; and
3. There was no juristic reason for the enrichment.

Mr. Justice Masuhara found against Ms. Melchior on all three counts.

First, Ms. Melchior was well paid for her work in the business. She drew salaries, and Interact Wood Products Ltd. covered some of her expenses such as some of her meals. Although she received benefits from the business, including the loan, she was insulated from most of the financial risks.

Secondly, the deprivation was the loss of business because of market reversals. It was not the type of deprivation against which the law of unjust enrichment afforded protection.

Thirdly, there were juristic reasons for the lender to benefit from its security ahead of any claims by Ms. Melchior. The lender made the loan in good faith on the basis of its agreement with Mr. Cable and Interact Wood Products Ltd. The patent was registered in Mr. Cable’s sole name. Ms. Melchior was aware of the terms of the loan agreements, but raised no objection to Mr. Cable giving the lender a security interest in the patent when the loan was made. Ms. Melchior did not assert any claim to an interest in the patent until after Interact Wood Products defaulted on the loan. She had no reasonable expectation to an interest in the patents.

Mr. Justice Masuhara distinguished between the cases where one common-law spouse is making an unjust enrichment claim against the other in the context of a breakdown in the relationship, and the claim by a common-law spouse to defeat a creditor of her common-law spouse. He wrote at paragraph 84:

The somewhat unique feature of this case is that while Ms. Melchior’s claim is a claim of unjust enrichment against her spouse, this is not a case where the court is being asked to divide the remnants of a spousal relationship that has come to an end. Rather, the sought after interest is in a business assets and the relief claimed is to enable Ms. Melchior and Mr. Cable to continue on together with their business by limiting the scope of security available to creditors of Mr. Cable, and in particular, 568 a secured creditor.

In a nutshell, the court found that it would have been unjust for the court to impose a constructive trust in favor of Ms. Melchior to the prejudice of Mr. Cable’s creditors.

Who Pays the Mortgage on the Death of a Joint Tenant?

If two people own real estate that they have mortgaged in a joint tenancy, and one of them dies, does the estate of the deceased have to contribute to the mortgage, or does the surviving joint tenant have to pay it all?

Mr. Justice Sigurdson of the Supreme Court of British Columbia considered this issue in Parrott-Ericson v. Stockwell, 2006 BCSC 1409. Helen Parrott-Ericson and her husband, Goran Ericson, borrowed $420,000, which they used to buy two condominiums. They were both responsible to the lender for paying the loans. The loans were secured by mortgages of the condominiums.

Mr. Ericson and Mrs. Parrott-Ericson were registered on title to the condominiums as joint tenants.

When Mr. Ericson died, Mrs. Parrott-Ericson became the sole owner of the condominiums by right-of-survivorship. Mrs. Parrott-Ericson asked the executor of Mr. Ericson's estate to pay one-half of the loans out of Mr. Ericson's estate. When the executor refused, Mrs. Parrott-Ericson sued.

Mr. Justice Sigurdson held that in the circumstances, Mrs. Parrott-Ericson was not entitled to contribution from her husband's estate.

When two or more people are both liable on a loan, the general rule (or in legal terms the prima facie rule) is that they will share it equally, unless they have agreed on some other proportions. If one pays more than an equal share, the person paying more is entitled to contribution from the other debtor or debtors. Otherwise, the other debtor or debtors would be unjustly enriched.

But in this case, the court found that the general rule that each debtor is required to contribute equally does not apply. Because Mrs. Parrott-Ericson has received the benefit of sole ownership of the condominiums, the estate would not be unjustly enriched if Mrs. Parrott-Ericson is required to pay the full amount owing on the loans. It would be unfair to the beneficiaries of Mr. Ericson's estate if they had to bear part of the burden of the debt, without receiving an interest in the condominiums.

In Mr. Justice Sigurdson's words, at paragraph 27,

Here, on the evidence, I find that the mortgage debt and the land were clearly connected in this sense. The joint and several loan was the basis upon which the property was acquired. It was still a substantial burden on the property at the time of the deceased’s death. There was no arrangement that the estate would be liable for one-half of the debt. Of course, equity will impose that obligation in order to avoid unjust enrichment. That is the usual rule, because ordinarily there is unjust enrichment if the liability is not shared. However, here on the facts of the case at bar, I think that, given the joint debt was used to acquire the land and the petitioner received the land entirely, I find that she would be unjustly enriched if the estate had to pay one-half of the debt. On that basis, the petitioner’s claim must fail.

In cases where the surviving joint tenant is also the sole beneficiary of the deceased's estate, and no one is making a claim to vary the will (or some other claim against the estate), this issue will be academic. Mr. Justice Sigurdson's reasons for judgment do not say who is the beneficiary of Mr. Ericson's will, but Mr. Ericson's children from a previous marriage were making claims to vary the will under the Wills Variation Act, RSBC 1996, c. 490. Accordingly, if the estate had to contribute to the loans, the contribution would reduce the amount available to be varied under the will.

This decision does not affect the rights of the lender. The lender could still proceed against the estate to recover the loans if there is a default. If the executor paid some or all of the debts out of the estate, the executor could presumably seek reimbursement from the surviving joint tenant on the grounds that the survivor would be unjustly enriched by the payments. But, if there is a default, the lender is most likely to start foreclosure proceedings, and seek an order for sale of the condominums to pay the loans, in which case the burden will fall on the surviving joint tenant anyway.

British Columbia Court of Appeal Reduces Award in Schnogl v. Blazicevic

The British Columbia Court of Appeal has reduced the award to the Plaintiff in Schnogl v. Blazicevic, 2005 BCCA 575, from a constructive trust over 90% of the deceased's home to 66 2/3% of the home. (See my October 30 post, "Unjust Enrichment: Schnogl v. Blazicevic," for a summary of the facts and a discussion of the trial judge's decision.)

In reducing the award, Madam Justice Prowse for the court said that trial judges have considerable discretion in determining awards in unjust enrichment cases. However, in this case the award was disproportionately high compared to the benefits received by the deceased and the sacrifices made by the Plaintiff. It was also high when compared to awards made in other cases. The award failed to fully take into consideration the benefits the Plaintiff had received from his relationship with the deceased. She said at paragraph 21:

[21] In determining whether the trial judge erred in awarding Mr. Schnogl a 90% interest in the property, I do not lose sight of the fact that these cases are essentially fact-driven. For that reason, it is of limited assistance to compare awards in one case with those in another. Trial judges are given considerable leeway to tailor an award to fit the precise circumstances before them. In this case, however, I am satisfied that the trial judge’s determination did not adequately take into account the fact that Mr. Schnogl continued to work full-time during the time that he provided his services to the Balens, and that he continued to benefit from a significantly reduced cost of room and board during the time he lived with them. While the services he rendered were extensive and prolonged, and while he gave up the valuable opportunity to purchase his own residence, the extent of the unjust enrichment obtained by Mr. Balen must take into account these additional factors.

Unjust Enrichment: Claims by Stepchildren

The law of unjust enrichment is a vital, flexible and evolving branch of Canadian common law. It allows the courts to remedy injustices for which other, older branches of law do not apply.

The basic principles of an unjust enrichment claim are as follows:

1. The person making the claim must have benefited or enriched the defendant;
2. The person making the claim must have suffered a corresponding deprivation;
3. There is no juristic reason for the enrichment.

In my October 30 post, I wrote about Schnogl v. Blazicevic, 2004 BCSC 1335, a case in which the Supreme Court of British Columbia awarded the plaintiff, who was a tenant and friend of the deceased, a 90 percent interest in the deceased’s house by imposing a constructive trust on the house. The court found that the plaintiff had provided extensive services to the deceased and the deceased’s spouse in the legitimate expectation that the plaintiff would be left the house in the deceased’s will.

Today I am writing about my favorite unjust enrichment case, Moyes v. Ollerich Estate, 2005 BCCA 518.

Joan Moyes was Marjorie Ollerich’s stepdaughter. Mrs. Ollerich had married Joan’s father when Joan Moyes was 18 years old. Over the years, they developed a close bond, and a mother and daughter relationship. When Joan Moyes father Andrew Ollerich died in 1966, he left his assets to Mrs. Ollerich.

As Marjorie Ollerich got older, her health deteriorated, and Joan Moyes provided a great deal of comfort and care to her. Although Joan Moyes lived a few hours away from Kelowna, where Marjorie Ollerich lived, Mrs. Moyes spent days and weeks at a time, away from home, caring for Mrs. Ollerich. After Mrs. Ollerich went to live in nursing homes, Mrs. Moyes continued to visit her and assist her.

Mrs. Ollerich had told Mrs. Moyes on two occasions that she would be leaving a significant share of her estate to Mrs. Moyes.

However, Mrs. Ollerich’s last will left Mrs. Moyes $25,000 out of an estate of about $700,000. There were a number of other specific financial gifts, and the residue was left to Mrs. Ollerich’s brother.

After Mrs. Ollerich died, Mrs. Moyes brought a claim against her estate on the basis of unjust enrichment. The case was heard as a summary trial, on affidavit evidence.

Madam Justice Beames, of the Supreme Court of British Columbia, awarded Mrs. Moyes $125,000 plus interest in addition to the $25,000 bequest.

In reaching her decision, Beames J. cited another case brought by a stepdaughter who advanced a claim to a larger share of her stepparent’s estate: Clarkson v. McCrossen (1995), 3 B.C.L.R. (3d) 80 (B.C.C.A).

Clarkson is a significant case because the British Columbia Court of Appeal held that the in determining the amount of a monetary award for unjust enrichment, the court may consider the supportive relationship between the plaintiff and her stepparent. Mr. Justice Hinds in Clarkson said:

In the particular circumstances of this case, where a stepdaughter had been treated for a period in excess of 40 years - almost her entire life - as a natural daughter by her stepfather, where a close relationship existed between them and each became somewhat dependent on the other and where there was a reasonable expectation, I am of the view that the supportive relationships between the respondent and her stepfather, above described, are compensable. The value of them, to a moderate degree, should be included in the determination of the value received approach to the monetary award.

In his concurring judgment in Clarkson, Chief Justice McEachern wrote:

This leads me to conclude that, in principle, no distinction should be drawn between services rendered under a reasonable expectation of fair treatment between a stepdaughter, as in this case, and a wife or common-law partner. The enrichment must be viewed appropriately in the context in which it is created. Many years of loving care and companionship furnished by a devoted stepdaughter, for example, where there is a reasonably based expectation of tangible benefit, should not always be equated to the per diem cost of employed homemakers at minimum wages.

The defendants in the Moyes case appealed to the British Columbia Court of Appeal, both on the finding of unjust enrichment, and second on the amount of the award. The Court of Appeal found that the first ground was “misconceived,” finding that the Chambers judge properly considered Mrs. Moyes evidence of Mrs. Ollerich's statements to her that she would leave a significant share of her estate to Mrs. Moyes in the context of the surrounding circumstances.

With respect to the amount of the award, the defendants argued that the nature and extent of the services that Mrs. Moyes rendered were not as extensive as the plaintiff in Clarkson, and, therefore, the amount of the award should be lower.

The plaintiff argued before the Court of Appeal that the nature and extent of the services was one of several factors, and not the only factor, that the court could consider. The court could also consider the nature of the relationship between the parties, the plaintiff’s sacrifices, the reciprocal benefits the plaintiff received from the deceased, and the size of the estate.

The Court of Appeal upheld the amount of the award. Madam Justice Prowse, for the court, said in respect of Clarkson,

While it may be fair to say that the nature and extent of the services provided by the stepdaughter in Clarkson was greater than that here, that case does not purport to set an upper limit. It was simply a case in which this Court determined that it was inappropriate to interfere with the quantum of the award.

Prowse J.A. also said, “[I]t is clear from the authorities that trial judges have considerable discretion in that regard to take into account the specific circumstances before them.”

I intend to discuss the differences between the remedies of constructive trust and monetary awards in a future post. But, for now, I think that both Clarkson and Moyes are significant cases in the evolution of unjust enrichment in that they tend to narrow the gap between cases in which the court chooses the remedy of constructive trust, and gives the plaintiff an interest in property that may have a substantial value, and monetary awards that were traditionally quite modest.

I would like to thank Joan Moyes for her decision a couple of years ago to retain me. It was an honor to represent her in both the Supreme Court of British Columbia, and in the Court of Appeal.

Unjust Enrichment: Schnogl v. Blazicevic

Heinz Schnogl met and became friends with Mary and Richard Balen in about 1969. They were about 20 years his senior, and did not have any children.

The Balens had purchased a home on West 10th Avenue in Vancouver in 1967, for $12,000. In 1976 and 1977, they had their house renovated to include a basement suite. Mr. Schnogl, who was a journeyman plumber, did the plumbing and some other work for them. A year later he rented the suite.

Mr. Schnogl paid rent to the Balens, and half of the utility bills. He often ate with the Balens, and paid them for the food. He did the gardening, cut the grass, painted the trim on the house, repaired the fence, and other maintenance. He also spent money on the house, contributing $1,300 toward the replacement of the roof.

Over the years Mary Balen had health problems. In the 1980s she developed osteoarthritis, and required dialysis. Mr. Schnogl gave her messages to help with her respiration. When she was in the hospital, he drove Richard Balen to the hospital to visit her.

A couple of times, Mr. Schnogl considered moving out and buying his own home. Mr. Balen dissuaded him, telling him that someday the house on West 10th would be his.

Mary Balen died in 1986. Heinz Schogl continued to rent the suite from Mr. Balen, who died on October 29, 1998.

When Mr. Balen died, his last Will was dated July 9, 1973. It provided that if Mrs. Balen died before him, half of his estate would go to her brothers, and the other half to his parents, or if they were dead, his brother. Both Mr. Balens parents and his brother died before him, but his niece is entitled to the brother’s share.

Two or three months before he died, Mr. Balens went to see a lawyer about making a new Will. The lawyer drew up a will for him, leaving Mr. Schnogl $10,000, and the right to live in the house for ten years. However, Richard Balens never signed the new Will.

After Richard Balen died, Mr. Schnogl sued his estate. Mr. Schnogl claimed that there was a contract between them that in exchange for his services over the years, Mr. Balens promised to leave him the house. Alternatively, he argued that he should either get the house or monetary compensation based on the legal principles of unjust enrichment.

The court found that there was no contract in the circumstances.

To succeed in an unjust enrichment claim, Mr. Schnogl was required to prove the following three things:

1. Mr. and Mrs. Balen benefited or were enriched by his services and contributions to the house;
2. Mr. Schnogl suffered a corresponding deprivation; and
3. There was no juristic reason for the Balens’ enrichment.

Clearly, Mr. Schnogl’s services and money contributions enriched the Balens. He suffered a corresponding deprivation in that he contributed labour without pay, and money without reimbursement. He also gave up the opportunity to own his own home, and take advantage of Vancouver’s rising real estate prices.

It was the third element that was the most contentious. The executor of Richard Balen’s will argued that over the years Mr. Schnogl was charged a lower than market rent in exchange for his services. The services were, according to the executor, part of a contract between the Balens and Mr. Schnogl. If Mr. Schnogl were contractually obligated to do the maintenance and other services, then this would preclude Mr. Schnogl from getting anything from the estate. According to the executor, Mr. Schnogl already received the reduced rent, and this was a “juristic reason” for the enrichment.

In Schnogl v. Blazicevic, 2004 BCSC 1335, Mr. Justice Cullen, of the Supreme Court of British Columbia, rejected the executor’s argument. He found that although the relationship may have started out as a landlord and tenant relationship, it was not bound by it. Mr. Schnogl’s services included personal care that was not related to the house. The relationship took on more of a parent and child relationship.

The executor also argued that Mr. Schnogl’s services and other contributions were a gift, made without any expectation of reward, and that Richard Balen’s estate was not required to compensate him. The court also rejected this argument. The court found that the Balens had led Mr. Schnogl to expect that he would get an interest in the house.

The court awarded Heinz Schnogl a 90% interest in the house by granting Mr. Schnogl a remedial constructive trust. [Since I wrote this post, the Court of Appeal has reduced the award to a 66 2/3% interest in the house. See my post of December 15, 2005, on the Court of Appeal decision here.]

The house on 10th Avenue, in Vancouver, that the Balens bought in 1967 for $10,000 was appraised in January 2004, at $490,000.