Canada: Constructive Trust Claims In Real Property Get Benefit Of Longer Limitation Period

When the old Ontario limitations regime was revised back in 2002, the original hope had been to deal with all major limitation periods in one convenient statute. But when the review panel charged with the task of making the relevant recommendations determined that it did not have sufficient expertise to deal with actions to recover land, the final limitations regime ultimately was apportioned between the new Limitations Act, 2002 (Ontario)(the "NLA"), which dealt with claims not primarily involving interests in land, and the Real Property Limitations Act (Ontario)(the "RPLA"), which did. When the RPLA preserved the existing (and much longer) ten-year limitation period for land disputes, and the NLA severely truncated most other limitation periods to just two years, a tension naturally developed as to which statute should apply in respect of those claims where the apportionment was left somewhat unclear.

One such area of uncertainty involved claims for unjust enrichment where the plaintiff was seeking the imposition of a constructive trust over real property. On the one hand, Section 4 of the RPLA clearly provided that an "action to recover" land had the benefit of the RPLA's much longer limitation period. On the other hand, the imposition of a constructive trust might not constitute a true "recovery" of land. Instead, it might just result in the creation of a brand new interest where none previously existed. Not much in terms of "recovery" in other words. If the latter argument was correct, claimants seeking the imposition of a constructive trust over land would be subject to the much shorter limitation period under the NLA.

Fortunately, the Ontario Court of Appeal's recent decision in McConnell v. Huxtable1 has now settled the issue once and for all. Claimants seeking the imposition of a constructive trust over real property clearly obtain the benefit of RPLA's ten-year limitation period. Furthermore, and perhaps just as importantly, a monetary claim asserted by way of alternative to the constructive trust claim, will be permitted to "shelter" under the trust claim, and thereby derive the benefit of the extended limitation period.

Due to the prospective reach of the decision, the facts of the case are somewhat less important. But briefly, a claim was brought by an unmarried (female) spouse seeking the imposition of a constructive trust over land registered solely in the name of her former male partner. The claim was brought almost five years after their separation, and thus well beyond the NLA's two-year limitation period. Ultimately the matter was brought to a head when the former male partner attempted to sell the property and found a certificate of pending litigation registered against the property, thus preventing the sale from going forward. The plaintiff spouse sought a declaration that she held a 50% interest in the land, citing various contributions made in relation to the property during the course of their relationship.

In the result, the Court of Appeal concluded that plaintiff's action constituted an "action to recover" land under the RPLA, and was not merely an action that created a new interest in land. In other words, the term "recover" in Section 4 of the RPLA could include the issuance of a court order recognizing the plaintiff's pre-existing (although unregistered) interest in the real property. If the plaintiff had an equitable, though unrecognized, interest in land by reason of her prior contributions, then a subsequent court order would essentially constitute the needed "recovery" under the statute.

The Court's decision here has a potentially long reach and is by no means limited to matters of family law. Indeed, the Court of Appeal indicated as much, suggesting that the end result would have been "the same whether the equitable claim for an interest in land [arose] out of a domestic relationship or a purely business transaction" (emphasis added). No doubt, this has to be true since the Court here was interpreting Section 4 of the RPLA ̶ a statute of general application not limited to matters of family law.

As such, the decision could conceivably impact any number of situations where a constructive trust over land is sought. For example, constructive trusts over land are sometimes sought where a trustee under a trust document, or some other fiduciary, for example a real estate agent, has breached its duty, either to a trust beneficiary or a client, not to deal personally with trust property or real estate pursued by the client. In corporate situations, constructive trusts have been sought over mining and other development properties where a director, insider or prospective joint venturer has abused its insider relationship or misappropriated confidential information to acquire the property itself. And of course, constructive trusts over real property have long been sought where one party is led to believe that its efforts in relation to the property will provide it with future rights that are later dishonoured.

In all these instances (and perhaps others), claims for constructive trust should remain viable over the much longer time frame contemplated by the RPLA. Likewise, alternative claims for monetary damages should also remain equally viable. Accordingly, commercial enterprises with claims potentially involving constructive interests over real property are best advised to keep the McConnell decision firmly in mind. They may be able to rely on it to obtain the benefit of the much longer limitation period afforded by the RPLA.


1. 2013 ONSC 948 (Ont. C.A.)

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