Canada: The Constructive Trust: A Just Remedy for Unjust Enrichment?

Last Updated: September 26 2013
Article by Timothy D. Chapman-Smith

Should the reasonable expectations of litigants determine the availability of a proprietary remedy where one party has been unjustly enriched by the other? If a proprietary remedy is available in principle, is it just to impose a constructive trust when the plaintiff never expected to earn a proprietary interest?

A recent case from British Columbia, Haigh v. Kent, 2013 BCCA 380, addresses these questions (and more). Ultimately, the BC Court of Appeal upheld a trial judgment awarding a 25% interest in a campground and beach resort by way of constructive trust to a plaintiff who never expected to earn an interest in the property at all. In doing so, the BCCA clarified the role of reasonable expectations in an unjust enrichment claim.

Background

Haigh involved an informal, undocumented family business venture. Mr. Kent and his son (collectively referred to as "Mr. Kent") owned a campground and beach resort on 95 acres of land near Powell River in southwestern British Columbia. In 1980, Mr. Kent invited Mr. Haigh (and his then-wife) to live on the property. The Haighs moved that year. Mr. Haigh assisted Mr. Kent with the maintenance and operation of the resort from 1980 to 2004, at which time Mr. Haigh terminated the business relationship.

After ending the business relationship Mr. Haigh commenced litigation, claiming a one acre share of the property on the basis of an express trust. In the alternative, Mr. Haigh alleged Mr. Kent had been unjustly enriched by his contributions to the resort from 1980 to 2004, for which he sought the imposition of a constructive trust. In the further alternative, Mr. Haigh sought a monetary judgment for the value of the work he performed over the years on the basis of the "value survived" approach to quantum meruit.

Mr. Kent denied the allegations and claimed for declaratory and injunctive relief.[1]

Decision Below

Justice Saunders of the British Columbia Supreme Court awarded Mr. Haigh a 25% beneficial interest in the property by way of constructive trust.

After dismissing the claim for an express trust and refusing to recognize a legal partnership between the litigants, Saunders J. analyzed Mr. Haigh's claim in unjust enrichment.

[R]egardless of whether there was a legally enforceable relationship or contract between the parties governing the whole of their relationship, Mr. Haigh will be entitled to a remedy if the evidence establishes the basis for a claim in unjust enrichment.

Quoting Garland v. Consumers' Gas Co., 2004 SCC 24, Saunders J. outlined the test for unjust enrichment: a plaintiff must prove an enrichment of the defendant, a corresponding deprivation of the plaintiff, and the absence of a juristic reason for the enrichment.

Based on the evidence, including the nature of Mr. Haigh's contributions and the value of the property, the trial judge had little difficulty finding that Mr. Haigh had enriched Mr. Kent and suffered a corresponding deprivation. Saunders J. also held that there was no juristic reason for the enrichment. Neither the years of rent-free accommodation, nor Mr. Haigh's participation in a loose "partnership" with Mr. Kent provided a juristic reason for Mr. Kent to retain the contributions.

Having found that Mr. Haigh was entitled to claim in unjust enrichment, the next consideration was the appropriate remedy. Was Mr. Haigh entitled only to payment for his services, or was a proprietary remedy necessary to do justice in the circumstances?

Saunders J. held that a "value received" award could not accurately capture the value of Mr. Haigh's contributions. Though damages might be quantified on a "value survived" approach, the contributions made by Mr. Haigh were "so substantial and direct as to entitle him to a portion of the profits, were the land to be sold". At the heart of this determination was the finding that the business of the resort was intertwined with the property. Accordingly, a proprietary remedy was appropriate and necessary to do justice between the parties and Mr. Haigh was awarded a 25% beneficial interest in the property by way of constructive trust.

Mr. Kent appealed.

The BC Court of Appeal

A majority of the BC Court of Appeal (Newbury and Harris JJ.A.) dismissed Mr. Kent's appeal. The Haigh majority found it was open for the trial judge to conclude on the evidence that Mr. Haigh unjustly enriched Mr. Kent and that a constructive trust was the appropriate remedy.

Two aspects of the appeal are of particular interest. First, Mr. Kent argued that there was a juristic reason for the enrichment based on the "partnership" and the reasonable expecations of the men. Mr. Haigh contributed to a partnership that was distinct from the property and to the extent Mr. Haigh was entitled to a remedy, that remedy could only be the value of his partnership interest when he left. Second, if Mr. Kent was unjustly enriched, the appropriate remedy for Mr. Haigh was a monetary award not a proprietary one.

Mr. Kent argued that the partnership provided a juristic reason for him to retain any contributions and limited Mr. Haigh's claim to a share in the partnership. The Haigh majority rejected this argument, upholding the trial judge's conclusion that the legal relationship between the men was inchoate and ill defined. Mr. Kent also argued that the parties' reasonable expectations provided a juristic reason for the enrichment as Mr. Haigh had no expectation that he was to earn an interest in the property. However, the evidentiary findings at trail showed there was a common expectation between the two men that they would share in the fruits of the business venture. These fruits included the enhanced value of the property on which the business was conducted and without which it could not exist. Notwithstanding the fact that Mr. Haigh did not expect to earn an interest in the land, the trial judge concluded that there was no juristic reason for Mr. Kent's enrichment.

Mr. Kent went on to argue that if he had been unjustly enriched, a monetary award was the appropriate remedy in the circumstances because, among other things, Mr. Haigh never expected to earn an interest in the property. He only expected to benefit from the success of the business, which the parties understood as distinct from the property. In dismissing this argument the Haigh majority clarified the role of reasonable expectations at the remedial stage of the analysis:

Although the reasonable expectations of the parties may be relevant to an appropriate remedy, they are not determinative. Rather the critical question is the nature of the contribution made to the property. If the contribution is sufficiently direct and substantial, then awarding a proprietary remedy may be appropriate, even if the contribution was made without an expectation that it would earn an interest in land.

Mr. Haigh's expectations did not preclude the availability of a proprietary remedy. It is the nature of the contribution that determines whether a proprietary remedy is required to effect justice between the parties.

The majority also recognized that the decision to grant a proprietary remedy is a discretionary one that cannot be lightly disturbed by a reviewing court.

The challenge facing the appellants is that whether to grant a proprietary remedy is a matter of discretion to which this Court owes deference [...] An appellate court will only intervene if the discretion has been exercised on the basis of an erroneous principle.

The Dissent

Chiasson J.A. dissented only in respect of the remedy, holding that the trial judge's failure to address the adequacy of monetary damages based on the "value survived" approach was an error in principle. Chiasson J.A. also placed greater weight on the role of reasonable expectations in fashioning an appropriate remedy for unjust enrichment:

In my view, the trial judge erred in failing to determine whether a monetary award was inadequate. I see no basis for concluding that it was not. It also is my view that the expectations of the parties is of considerable significance to the analysis.

The trial judge concluded that an award based on "value received" would not capture the value of Mr. Haigh's contributions, but failed to consider the adequacy of an award on the basis of "value survived". Chaisson J.A. would have awarded Mr. Haight a 25% interest in the resort business as of 2004, calculated on the basis of the value survived approach to quantum meruit.

Potential Significance

Haigh is significant because it eludicates the role of reasonable expectations in an unjust enrichment claim, particularly at the juristic reason and remedial stages of the analysis.

Haigh is also important because the BCCA concluded that proprietary remedies are not contingent on the claimant's reasonable expectations. It is the nature of the contribution that determines whether a constructive trust is appropriate.

Finally, Haigh reflects the high level of deference that exists on appeal in constructive trust cases. Once imposed at trial, proprietary remedies will not be easily set aside.

Case Information

Haigh v. Kent, 2013 BCCA 380

British Columbia Court of Appeal Dockets: CA040313 & CA040314

Date of Decision: August 29, 2013

Footnote

[1] This post does not address Mr. Kent's claims or the related appeal.

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Timothy D. Chapman-Smith
 
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