Simon's Megalomaniacal Legal Resources

Equity - Remedies - Constructive Trusts (3)

. Chippewas of Nawash Unceded First Nation v. Canada (Attorney General)

In Chippewas of Nawash Unceded First Nation v. Canada (Attorney General) (Ont CA, 2023) the Court of Appeal considers an indigenous claim against municipalities where, historically, the Crown allowed 'settler squatting' on native land. The indigenous claim asserted an 'institutional constructive trust' over "municipal roads and unopened road allowances" insofar as they were later conveyed to the municipalities.

In these quotes the court considers the factors that can exist in determining constructive trusts and their various remedies:

[252] SON’s action against the municipalities is based on the Crown’s alleged breaches of duty to SON before its surrender of lands to the Crown through Treaty 72. SON argues that the surrendered lands should be impressed with an institutional constructive trust by reason of those breaches, and that SON is entitled to follow the lands impressed with that trust into the hands of the municipalities. SON acknowledges that the municipalities were not the Crown, did not breach any fiduciary duties to SON, and, therefore, are innocent of any wrongdoing.

[253] Nonetheless, SON claims entitlement to all of the municipal roads and unopened road allowances on the surrendered lands. A map, appended to these reasons as “Schedule B”, illustrates the network of road systems in one of the municipalities, Georgian Bluffs. In Georgian Bluffs, there are, for example, about 380 kilometres of roads that must be maintained and about 240 kilometres of unopened road allowances.

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(b) Governing principles

(i) Institutional or remedial constructive trusts

[263] SON relies on Soulos v. Korkontzilas, 1997 CanLII 346 (SCC), [1997] 2 S.C.R. 217, to assert that when Treaty 72 was signed, the surrendered lands were impressed with an institutional constructive trust in its favour because of the Crown’s wrongdoing, consisting of Anderson’s inappropriate remarks and the failure to diligently enforce the promise in Treaty 45 ½ to protect SON’s lands from incursions by settlers and trespassers.

[264] In Soulos, a realtor bought property for himself, although he had been negotiating the purchase of that property on behalf of a client. He did not disclose the counter-offer made in response to his own client’s offer for the property. The value of the property decreased, so the client did not suffer any loss as a result, but the client wanted the property for other reasons. The Supreme Court held that the remedy of a constructive trust was not limited to cases of unjust enrichment, but that a constructive trust could be imposed in the absence of loss, “in order to condemn the agent’s improper act and maintain the bond of trust underlying the real estate industry and hence the ‘integrity of the laws’ which a court of equity supervises”: at para. 13.

[265] The court further held, at para. 17, that the constructive trust is a remedy to protect relationships of trust and prevent the wrongful retention of property:

[T]he constructive trust is an ancient and eclectic institution imposed by law not only to remedy unjust enrichment, but to hold persons in different situations to high standards of trust and probity and prevent them from retaining property which in “good conscience” they should not be permitted to retain. This served the end, not only of doing justice in the case before the court, but of protecting relationships of trust and the institutions that depend on these relationships. These goals were accomplished by treating the person holding the property as a trustee of it for the wronged person’s benefit, even though there was no true trust created by intention. In England, the trust thus created was thought of as a real or “institutional” trust. In the United States and recently in Canada, jurisprudence speaks of the availability of the constructive trust as a remedy; hence the remedial constructive trust.

[266] The Soulos court noted, however, that not all breaches of fiduciary duty give rise to such a remedial constructive trust: at para. 19. Citing L.S. Sealy, “Fiduciary Relationships” (1962) 20 Camb. L.J. 69, at p. 73, the court instructed that “[e]ach equitable remedy is available only in a limited number of fiduciary situations; and the mere statement that John is in a fiduciary relationship towards me means no more than that in some respects his position is trustee-like; it does not warrant the inference that any particular fiduciary principle or remedy can be applied”: at para. 19. On the other hand, the court noted that the absence of a “classic fiduciary relationship does not necessarily preclude a finding of a constructive trust; the wrongful nature of an act may be sufficient to constitute a breach of a trust-like duty”: at para. 19.

[267] The court also endorsed the view that underlying remedial constructive trusts is a concern about a lack of probity on the part of the holder of legal title. Conduct contrary to “good conscience” may give rise to a remedial constructive trust. The court noted, at para. 33, that “[g]ood conscience addresses not only fairness between the parties before the court, but the larger public concern of the courts to maintain the integrity of institutions like fiduciary relationships”.

[268] The court further held, at para. 34, that the inquiry into good conscience is informed by many factors:

It thus emerges that a constructive trust may be imposed where good conscience so requires. The inquiry into good conscience is informed by the situations where constructive trusts have been recognized in the past. It is also informed by the dual reasons for which constructive trusts have traditionally been imposed: to do justice between the parties and to maintain the integrity of institutions dependent on trust-like relationships. Finally, it is informed by the absence of an indication that a constructive trust would have an unfair or unjust effect on the defendant or third parties, matters which equity has always taken into account. Equitable remedies are flexible; their award is based on what is just in all the circumstances of the case.

[269] The Soulos court, at para. 45, identified four elements which should generally be satisfied to justify imposition of a constructive trust based on wrongful conduct:

1. The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, in relation to the activities giving rise to the assets in their hands;

2. The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of their equitable obligation to the plaintiff;

3. The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties; and

4. There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case (e.g., the interests of intervening creditors must be protected).

[270] Ultimately, the court concluded, at paras. 47-51, that a constructive trust should be imposed to require the realtor to return the property to his client because: (1) the realtor’s conduct was so flagrantly in breach of his duty to his client; (2) his acquisition of the property was a direct result of his breach of duty; and (3) no third party would be adversely affected.

. Paton Estate v. Ontario Lottery and Gaming Corporation (Fallsview Casino Resort and OLG Casino Brantford)

In Paton Estate v. Ontario Lottery and Gaming Corporation (Fallsview Casino Resort and OLG Casino Brantford) (Ont CA, 2016), where embezzled funds were spent in gambling, the Court of Appeal commented on the application of the doctrine of constructive trust in the context of embazzlement:

[28] Furthermore, in Soulos v. Korkontzilas, 1997 CanLII 346 (SCC), [1997] 2 S.C.R. 217, at paras. 34 and 43, the Supreme Court of Canada recognized that the remedy of a constructive trust could be imposed where required by good conscience, including both for wrongful acts like fraud and where there is unconscionable unjust enrichment:

It thus emerges that a constructive trust may be imposed where good conscience so requires. The inquiry into good conscience is informed by the situations where constructive trusts have been recognized in the past. It is also informed by the dual reasons for which constructive trusts have traditionally been imposed: to do justice between the parties and to maintain the integrity of institutions dependent on trust-like relationships. Finally, it is informed by the absence of an indication that a constructive trust would have an unfair or unjust effect on the defendant or third parties, matters which equity has always taken into account. Equitable remedies are flexible; their award is based on what is just in all the circumstances of the case.

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I conclude that in Canada, 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. While cases often involve both a wrongful act and unjust enrichment, constructive trusts may be imposed on either ground: where there is a wrongful act but no unjust enrichment and corresponding deprivation; or where there is an unconscionable unjust enrichment in the absence of a wrongful act, as in Pettkus v. Becker, supra. 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.