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Legal Topics in the Works

Trusts - Constructive Trust

Equity - Unjust Enrichment

Moore v Sweet (SCC, 2018)

In this case, the Supreme Court of Canada thoroughly revisits the doctrine of unjust enrichment and the remedy of constructive trusts:
IV. Issues

[30] The issues in this case are as follows:

A. Has Michelle made out a claim in unjust enrichment by establishing:

(1) Risa’s enrichment and her own corresponding deprivation; and

(2) the absence of any juristic reason for Risa’s enrichment at her expense?

B. If so, is a constructive trust the appropriate remedy?

V. Analysis

[31] In the present case, Michelle requests that the insurance proceeds be impressed with a constructive trust in her favour. The primary basis on which she seeks this remedy is unjust enrichment. In the alternative, she submits that the circumstances of her case provide a separate good conscience basis upon which a court may impose a constructive trust.

[32] A constructive trust is a vehicle of equity through which one person is required by operation of law — regardless of any intention — to hold certain property for the benefit of another (Waters’ Law of Trusts in Canada (4th ed. 2012), by D. W. M. Waters, M. R. Gillen and L. D. Smith, at p. 478). In Canada, it is understood primarily as a remedy, which may be imposed at a court’s discretion where good conscience so requires. As McLachlin J. (as she then was) noted in Soulos:
. . . under the broad umbrella of good conscience, constructive trusts are recognized both for wrongful acts like fraud and breach of duty of loyalty, as well as to remedy unjust enrichment and corresponding deprivation. . . . Within these two broad categories, there is room for the law of constructive trust to develop and for greater precision to be attained, as time and experience may dictate. [Emphasis added; para. 43.]
[33] What is therefore crucial to recognize is that a proper equitable basis must exist before the courts will impress certain property with a remedial constructive trust. The cause of action in unjust enrichment may provide one such basis, so long as the plaintiff can also establish that a monetary award is insufficient and that there is a link between his or her contributions and the disputed property (Peter v. Beblow, 1993 CanLII 126 (SCC), [1993] 1 S.C.R. 980, at p. 997; Kerr v. Baranow, 2011 SCC 10 (CanLII), [2011] 1 S.C.R. 269, at paras. 50-51). Absent this, a plaintiff seeking the imposition of a remedial constructive trust must point to some other basis on which this remedy can be imposed, like breach of fiduciary duty.[3]


A. Unjust Enrichment

[35] Broadly speaking, the doctrine of unjust enrichment applies when a defendant receives a benefit from a plaintiff in circumstances where it would be “against all conscience” for him or her to retain that benefit. Where this is found to be the case, the defendant will be obliged to restore that benefit to the plaintiff. As recognized by McLachlin J. in Peel (Regional Municipality) v. Canada, 1992 CanLII 21 (SCC), [1992] 3 S.C.R. 762, at p. 788, “At the heart of the doctrine of unjust enrichment . . . lies the notion of restoration of a benefit which justice does not permit one to retain.”

[36] Historically, restitution was available to plaintiffs whose cases fit into certain recognized “categories of recovery” — including where a plaintiff conferred a benefit on a defendant by mistake, under compulsion, out of necessity, as a result of a failed or ineffective transaction, or at the defendant’s request (Peel, at p. 789; Kerr, at para. 31). Although these discrete categories exist independently of one another, they are each premised on the existence of some injustice in permitting the defendant to retain the benefit that he or she received at the plaintiff’s expense.

[37] In the latter half of the 20th century, courts began to recognize the common principles underlying these discrete categories and, on this basis, developed “a framework that can explain all obligations arising from unjust enrichment” (L. Smith, “Demystifying Juristic Reasons” (2007), 45 Can. Bus. L.J. 281, at p. 281; see also Rathwell v. Rathwell, 1978 CanLII 3 (SCC), [1978] 2 S.C.R. 436, and Murdoch v. Murdoch, 1973 CanLII 193 (SCC), [1975] 1 S.C.R. 423, per Laskin J., dissenting). Under this principled framework, a plaintiff will succeed on the cause of action in unjust enrichment if he or she can show: (a) that the defendant was enriched; (b) that the plaintiff suffered a corresponding deprivation; and (c) that the defendant’s enrichment and the plaintiff’s corresponding deprivation occurred in the absence of a juristic reason (Pettkus v. Becker, 1980 CanLII 22 (SCC), [1980] 2 S.C.R. 834, at p. 848; Garland, at para. 30; Kerr, at paras. 30-45). While the principled unjust enrichment framework and the categories coexist (Kerr, at paras. 31-32), the parties in this case made submissions only under the principled unjust enrichment framework. These reasons proceed on this basis.

[38] This principled approach to unjust enrichment is a flexible one that allows courts to identify circumstances where justice and fairness require one party to restore a benefit to another. Recovery is therefore not restricted to cases that fit within the categories under which the retention of a conferred benefit was traditionally considered unjust (Kerr, at para. 32). As observed by McLachlin J. in Peel (at p. 788):
The tri‑partite principle of general application which this Court has recognized as the basis of the cause of action for unjust enrichment is thus seen to have grown out of the traditional categories of recovery. It is informed by them. It is capable, however, of going beyond them, allowing the law to develop in a flexible way as required to meet changing perceptions of justice.

[43] In addition to an enrichment of the defendant, a plaintiff asserting an unjust enrichment claim must also establish that he or she suffered a corresponding deprivation. According to Professor McInnes, this element serves the purpose of identifying the plaintiff as the person with standing to seek restitution against an unjustly enriched defendant (M. McInnes, The Canadian Law of Unjust Enrichment and Restitution (2014), at p. 149; see also Peel, at pp. 789-90, and Kleinwort Benson Ltd. v. Birmingham City Council, [1997] Q.B. 380 (C.A.), at pp. 393 and 400). Even if a defendant’s retention of a benefit can be said to be unjust, a plaintiff has no right to recover against that defendant if he or she suffered no loss at all, or suffered a loss wholly unrelated to the defendant’s gain. Instead, the plaintiff must demonstrate that the loss he or she incurred corresponds to the defendant’s gain, in the sense that there is some causal connection between the two (Pettkus, at p. 852). Put simply, the transaction that enriched the defendant must also have caused the plaintiff’s impoverishment, such that the defendant can be said to have been enriched at the plaintiff’s expense (P. D. Maddaugh and J. D. McCamus, The Law of Restitution (loose-leaf ed.), at p. 3-24). While the nature of the correspondence between such gain and loss may vary from case to case, this correspondence is what grounds the plaintiff’s entitlement to restitution as against an unjustly enriched defendant. Professor McInnes explains that “the Canadian conception of a ‘corresponding deprivation’ rightly emphasizes the crucial connection between the defendant’s gain and the plaintiff’s loss” (The Canadian Law of Unjust Enrichment and Restitution, at p. 149).

[44] The authorities on this point make clear that the measure of the plaintiff’s deprivation is not limited to the plaintiff’s out-of-pocket expenditures or to the benefit taken directly from him or her. Rather, the concept of “loss” also captures a benefit that was never in the plaintiff’s possession but that the court finds would have accrued for his or her benefit had it not been received by the defendant instead (Citadel General Assurance Co. v. Lloyds Bank Canada, 1997 CanLII 334 (SCC), [1997] 3 S.C.R. 805, at para. 30). This makes sense because in either case, the result is the same: the defendant becomes richer in circumstances where the plaintiff becomes poorer. As was succinctly articulated by La Forest J. in Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 CanLII 34 (SCC), [1989] 2 S.C.R. 574, at pp. 669-70:
When one talks of restitution, one normally talks of giving back to someone something that has been taken from them (a restitutionary proprietary award), or its equivalent value (a personal restitutionary award). As the Court of Appeal noted in this case, [the respondent] never in fact owned the [disputed] property, and so it cannot be “given back” to them. However, there are concurrent findings below that but for its interception by [the appellant], [the respondent] would have acquired the property. In Air Canada . . . , at pp. 1202-03, I said that the function of the law of restitution “is to ensure that where a plaintiff has been deprived of wealth that is either in his possession or would have accrued for his benefit, it is restored to him. The measure of restitutionary recovery is the gain the [defendant] made at the [plaintiff’s] expense.” (Emphasis added.) In my view the fact that [the respondent in this case] never owned the property should not preclude it from the pursuing a restitutionary claim: see Birks, An Introduction to the Law of Restitution, at pp. 133-39. [The appellant] has therefore been enriched at the expense of [the respondent]. [Emphasis in original.]
While Lac Minerals turned largely on the defendant’s breach of confidence and breach of fiduciary duty, the above comments were made in the context of La Forest J.’s analysis of the tripartite unjust enrichment framework as it was applied in that case. My view is thus that these comments are applicable to the analysis in the present case.

[45] The foregoing also indicates that the corresponding deprivation element does not require that the disputed benefit be conferred directly by the plaintiff on the defendant (see McInnes, The Canadian Law of Unjust Enrichment and Restitution, at p. 155, but also see pp. 156-83; Maddaugh and McCamus, The Law of Restitution, at p. 35-1). This understanding of the correspondence between loss and gain has also been accepted under Quebec’s civilian approach to the law of unjust enrichment:
The theory of unjustified enrichment does not require that the enrichment pass directly from the property of the impoverished to that of the enriched party . . . . The impoverished party looks to the one who profited from its impoverishment. It is then for the enriched party to find a legal justification for its enrichment.

(Cie Immobilière Viger Ltée v. Lauréat Giguère Inc., 1976 CanLII 4 (SCC), [1977] 2 S.C.R. 67, at p. 79; see also Lacroix v. Valois, 1990 CanLII 46 (SCC), [1990] 2 S.C.R. 1259, at pp. 1278-79.)

[49] My view is that it is not useful, in the context of unjust enrichment, to distinguish between expectations based on a contractual obligation and expectations where there was a breach of an equitable duty (see my colleagues’ reasons, at para. 104). Rather, a robust approach to the corresponding deprivation element focuses simply on what the plaintiff actually lost — that is, property that was in his or her possession or that would have accrued for his or her benefit — and on whether that loss corresponds to the defendant’s enrichment, such that we can say that the latter was enriched at the expense of the former. As was observed by Professors Maddaugh and McCamus in The Law of Restitution, one source of difficulty in these kinds of disappointed beneficiary cases is
a rigid application of the “corresponding deprivation” or “expense” element as if it requires that the benefit in the defendant’s hands must have been transferred from, or constitute an out-of-pocket expense of, the plaintiff. . . . [R]estitution of benefits received from third parties may well provide a basis for recovery. In this particular context, the benefit received can, in any event, normally be described as having been received at the plaintiff’s expense in the sense that, but for the mistaken failure to implement the arrangements in question, the benefit would have been received by the plaintiff. [Emphasis added; p. 35-21.]
I agree. In this case, given the fact that Michelle held up her end of the bargain, kept the policy alive by paying the premiums, did not predecease Lawrence, and still did not get what she actually contracted for, it seems artificial to suggest that her loss was anything less than the right to receive the entirety of the insurance proceeds.


(2) Absence of Any Juristic Reason

[54] Having established an enrichment and a corresponding deprivation, Michelle must still show that there is no justification in law or equity for the fact that Risa was enriched at her expense in order to succeed in her claim. As observed by Cromwell J. in Kerr (at para. 40):
The third element of an unjust enrichment claim is that the benefit and corresponding detriment must have occurred without a juristic reason. To put it simply, this means that there is no reason in law or justice for the defendant’s retention of the benefit conferred by the plaintiff, making its retention “unjust” in the circumstances of the case . . . . [Emphasis added.]
[55] This understanding of juristic reason is crucial for the purposes of the present appeal. The third element of the cause of action in unjust enrichment is essentially concerned with the justification for the defendant’s retention of the benefit conferred on him or her at the plaintiff’s expense — or, to put it differently, with whether there is a juristic reason for the transaction that resulted in both the defendant’s enrichment and the plaintiff’s corresponding deprivation. If there is, then the defendant will be justified in keeping or retaining the benefit received at the plaintiff’s expense, and the plaintiff’s claim will fail accordingly. At its core, the doctrine of unjust enrichment is fundamentally concerned with reversing transfers of benefits that occur without any legal or equitable basis. As McLachlin J. stated in Peter (at p. 990), “It is at this stage that the court must consider whether the enrichment and detriment, morally neutral in themselves, are ‘unjust’.”

[56] In Garland, this Court shed light on exactly what must be shown under the juristic reason element of the unjust enrichment analysis — and in particular, on whether this third element requires that cases be decided by “finding a ‘juristic reason’ for a defendant’s enrichment” or instead by “asking whether the plaintiff has a positive reason for demanding restitution” (para. 41, citing Garland v. Consumers’ Gas Company Ltd. (2001), 2001 CanLII 8619 (ON CA), 57 O.R. (3d) 127 (C.A.), at para. 105). In an effort to eliminate the uncertainty between these competing approaches, Iacobucci J. formulated a juristic reason analysis that proceeds in two stages.

[57] The first stage requires the plaintiff to demonstrate that the defendant’s retention of the benefit at the plaintiff’s expense cannot be justified on the basis of any of the “established” categories of juristic reasons: a contract, a disposition of law, a donative intent, and other valid common law, equitable or statutory obligations (Garland, at para. 44; Kerr, at para. 41). If any of these categories applies, the analysis ends; the plaintiff’s claim must fail because the defendant will be justified in retaining the disputed benefit. For example, a plaintiff will be denied recovery in circumstances where he or she conferred a benefit on a defendant by way of gift, since there is nothing unjust about a defendant retaining a gift of money that was made to him or her by (and that resulted in the corresponding deprivation of) the plaintiff. In this way, these established categories limit the subjectivity and discretion inherent in the unjust enrichment analysis and help to delineate the boundaries of this cause of action (Garland, at para. 43).

[58] If the plaintiff successfully demonstrates that none of the established categories of juristic reasons applies, then he or she has established a prima facie case and the analysis proceeds to the second stage. At this stage, the defendant has an opportunity to rebut the plaintiff’s prima facie case by showing that there is some residual reason to deny recovery (Garland, at para. 45). The de facto burden of proof falls on the defendant to show why the enrichment should be retained. In determining whether this may be the case, the court should have regard to two considerations: the parties’ reasonable expectations and public policy (Garland, at para. 46; Kerr, at para. 43).

[59] This two-stage approach to juristic reason was designed to strike a balance between the need for predictability and stability on the one hand, and the importance of applying the doctrine of unjust enrichment flexibly, and in a manner that reflects our evolving perception of justice, on the other.


[63] Two categories of juristic reasons might be said to apply in the circumstances of this case: disposition of law and statutory obligations. Disposition of law is a broad category that applies in various circumstances, including “where the enrichment of the defendant at the plaintiff’s expense is required by law, such as where a valid statute denies recovery” (Kerr, at para. 41 (emphasis added)). The statutory obligations category operates in a substantially similar manner, precluding recovery where a legislative enactment expressly or implicitly mandates a transfer of wealth from the plaintiff to the defendant. Although there is undoubtedly a degree of overlap between these two distinct categories, what matters for the purposes of this appeal is that a plaintiff’s claim will necessarily fail if a legislative enactment provides a reason for the enrichment and corresponding deprivation, so as to preclude recovery in unjust enrichment. As Professors Maddaugh and McCamus note in The Law of Restitution:
. . . it is perhaps self‑evident that an unjust enrichment will not be established in any case where enrichment of the defendant at the plaintiff’s expense is required by law. The payment of validly imposed taxes may be considered unjust by some but their payment gives rise to no restitutionary right of recovery. [Emphasis added; footnotes omitted; p. 3-28.]
[64] The jurisprudence provides ample support for this proposition. Among the issues in Reference re Goods and Services Tax, 1992 CanLII 69 (SCC), [1992] 2 S.C.R. 445 (“GST Reference”), was whether suppliers registered under the Excise Tax Act, R.S.C. 1985, c. E-15, that incurred costs in collecting the Goods and Services Tax on behalf of the federal government could recover those costs from the government on the basis of restitution. For a majority of this Court, Lamer C.J. answered this question in the negative:
Under the GST Act the expenses involved in collecting and remitting the GST are borne by registered suppliers. This certainly constitutes a burden to these suppliers and a benefit to the federal government. However, this is precisely the burden contemplated by statute. Hence, a juridical reason for the retention of the benefit by the federal government exists unless the statute itself is ultra vires. [Emphasis added; p. 47.]
[65] A similar issue arose in Gladstone v. Canada (Attorney General), 2005 SCC 21 (CanLII), [2005] 1 S.C.R. 325. In that case, the respondents were charged under the Fisheries Act, R.S.C. 1970, c. F-14, for harvesting and attempting to sell large quantities of herring spawn. The Department of Fisheries and Oceans seized and sold the herring spawn, and the appellant Crown in Right of Canada held the proceeds pending the outcome of the proceedings. The proceedings were eventually stayed and the net proceeds paid to the respondents. Because the Crown refused to pay interest or any other additional amount, however, the respondents sought restitution in the amount of $132,000, on the ground that the Crown had been unjustly enriched by its retention of the proceeds during the time of seizure. Writing for a unanimous Court, Major J. denied that claim on the following basis:
Here, Parliament has enacted a statutory regime to regulate the commercial fishery. It has provided an extensive framework dealing with the seizure and return of things seized. This regime specifically provides for the return of any fish, thing, or proceeds realized. This was followed. Interest or some other additional amount might have been gratuitously included, but it was not. The validity of the Fisheries Act was not, nor could have been, successfully challenged. Therefore, the Act provides a juristic reason for any incidental enrichment which may have occurred in its operation. As a result, the unjust enrichment claim fails. [para. 22]
In short, it was Major J.’s position that the statutory regime, by specifying what had to be returned, made it clear that anything falling outside of the specified categories was to be retained by the Crown. In other words, the Fisheries Act stipulated that, in certain circumstances, a benefit would be retained by the Crown.

[66] These cases are examples of situations where a statute precluded recovery on the basis of unjust enrichment. It is to be noted that in each case, recovery was denied because the legislation in question expressly or implicitly required the transfer of wealth between the plaintiff and the defendant and therefore justified the defendant’s retention of the benefit received at the plaintiff’s expense. It is in this way that the applicable legislation can be understood as “denying” or “barring” recovery in restitution and therefore as supplying a juristic reason for the defendant’s retention of the benefit.


[83] The second stage of the juristic reason analysis affords the defendant an opportunity to rebut the plaintiff’s prima facie case by establishing that there is some residual reason to deny recovery. At this stage, various other considerations come into play, like the parties’ reasonable expectations and moral and policy-based arguments — including considerations relating to the way in which the parties organized their relationship (Garland, at paras. 45-46; Pacific National Investments, at para. 25; Kerr, at paras. 44-45).


B. Appropriate Remedy: Imposition of a Constructive Trust

[89] The remedy for unjust enrichment is restitutionary in nature and can take one of two forms: personal or proprietary. A personal remedy is essentially a debt or a monetary obligation — i.e. an order to pay damages — that may be enforced by the plaintiff against the defendant (Sorochan v. Sorochan, 1986 CanLII 23 (SCC), [1986] 2 S.C.R. 38, at p. 47). In most cases, this remedy will be sufficient to achieve restitution, and it can therefore be viewed as the “default” remedy for unjust enrichment (Lac Minerals, at p. 678; Kerr, at para. 46).

[90] In certain cases, however, a plaintiff may be awarded a remedy of a proprietary nature — that is, an entitlement “to enforce rights against a particular piece of property” (McInnes, The Canadian Law of Unjust Enrichment and Restitution, at p. 1295). The most pervasive and important proprietary remedy for unjust enrichment is the constructive trust — a remedy which, according to Dickson J. (as he then was),
is imposed without reference to intention to create a trust, and its purpose is to remedy a result otherwise unjust. It is a broad and flexible equitable tool which permits courts to gauge all the circumstances of the case, including the respective contributions of the parties, and to determine beneficial entitlement.

(Pettkus, at pp. 843-44)
[91] While the constructive trust is a powerful remedial tool, it is not available in all circumstances where a plaintiff establishes his or her claim in unjust enrichment. Rather, courts will impress the disputed property with a constructive trust only if the plaintiff can establish two things: first, that a personal remedy would be inadequate; and second, that the plaintiff’s contribution that founds the action is linked or causally connected to the property over which a constructive trust is claimed (PIPSC, at para. 149; Kerr, at paras. 50-51; Peter, at p. 988). And even where the court finds that a constructive trust would be an appropriate remedy, it will be imposed only to the extent of the plaintiff’s proportionate contribution (direct or indirect) to the acquisition, preservation, maintenance or improvement of the property (Kerr, at para. 51; Peter, at pp. 997-98).

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