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Equity - Remedies - Constructive Trusts (3). R. v. Travelers Insurance Company of Canada
In R. v. Travelers Insurance Company of Canada (Ont CA, 2024) the Ontario Court of Appeal allowed a Criminal Code property forfeiture appeal by an insurance company against the Crown, here alleging a restitutionary/constructive trust claims by subrogation [under CCC 462.37(2.01)] (comment: a constructive trust is a proprietary restitutionary remedy):[10] I would allow the appeal. The restitution and forfeiture provisions of the Criminal Code do not transform the Crown into a guarantor or trustee of claims. Even the Crown’s erroneous failure to put the Xpertdoc claim forward and bring it to the sentencing judge’s attention does not sustain Travelers’s claim of an unjust enrichment and a constructive interest in the forfeited property. However, it is the Crown’s erroneous omissions, in combination with the near certainty that restitution of the Xpertdoc claim would have been made, that amount to unjust enrichment supporting the requisite proprietary interest by way of a constructive trust in favour of Travelers. The Crown received monies that, but for the Crown’s erroneous omissions, should and would have been paid as restitution to Travelers in satisfaction of its subrogated Xpertdoc claim. As a result of the forfeiture, the Crown was unjustly enriched to the detriment of Travelers and without juristic reason. Those particular circumstances give rise to a constructive trust in favour of Travelers.
[11] The application judge erred in her application of s. 462.42 to the particular circumstances of this case. She erroneously characterized Travelers as being in the position of an ordinary creditor. This caused her to fail to give effect to her findings that support a constructive trust in favour of Travelers. These findings included that the Crown was aware of the Xpertdoc claim and had erroneously failed to put it before the sentencing judge, and, had it done so, the Xpertdoc claim, like the Thibert claim and other claims before the sentencing judge, would have received restitution beyond only the ransom payment. In these circumstances, the Crown erroneously received monies that should have gone to Travelers. As a result, the application judge erred by mischaracterizing Travelers’s claim as a claim for restitution rather than an interest in the property forfeited. She erred in finding that there was no claim for unjust enrichment in this case.
[12] This case turns on its unique facts: the Crown received monies that, but for the Crown’s errors, should have been paid to Travelers. Travelers therefore had the requisite proprietary interest in the seized proceeds of crime by way of a constructive trust. Travelers should therefore be granted relief from forfeiture beyond the ransom amounts already ordered by the application judge.
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[28] This case turns on its unusual and particular facts. As I shall explain, the application judge erred in failing to give effect to her factual findings and misapprehended the nature of Travelers’s status and its interest in the forfeited property. As a result, the application judge erred in finding that Travelers had no proprietary interest in the forfeited proceeds. I am also of the view that the application judge took an unduly restrictive approach to the scope of her discretion and failed to consider and apply the overall purpose of the relief from forfeiture provisions to all the relevant circumstances, especially the erroneous exclusion of Travelers’s restitution claim from the sentencing judge’s consideration and the failure to give Travelers the requisite notice of the Crown’s forfeiture application.
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(ii) Travelers has an interest in the property forfeited by way of a constructive trust
[42] I start with the question of whether Travelers has the requisite “interest in property that is forfeited” under s. 462.42(1) of the Criminal Code. An “interest in property that is forfeited” has been interpreted to mean “a person who has title or is entitled to possession” of the property in question: Tatarchuk, at para. 4. An “interest in property that is forfeited” can be by way of a constructive trust imposed because of an unjust enrichment: e.g., 1431633 Ontario Inc., at paras. 44, 64. As the Supreme Court instructed in Pettkus v. Becker, 1980 CanLII 22 (SCC), [1980] 2 S.C.R. 834, at pp. 850-51: “The equitable principle on which the remedy of constructive trust rests is broad and general; its purpose is to prevent unjust enrichment in whatever circumstances it occurs.”
[43] Moreover, Travelers would have the requisite “interest in property that is forfeited” under s. 462.42. The Crown fairly acknowledges that for the purpose of unjust enrichment, the concept of “loss” may capture a benefit that was never in Travelers’s possession but that would have accrued to its benefit had it not been received by the Crown instead. The Crown submits, however, that there was no unjust enrichment because the Crown was not enriched by the non-ransom amounts to the corresponding deprivation of Travelers. Even if that were the case, it is the Crown’s position that there is a juristic reason barring any claim the appellant may have for unjust enrichment.
[44] The test for unjust enrichment that gives rise to a constructive trust, as set out in Garland v. Consumers’ Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629, at para. 30, is as follows: 1) Was there an enrichment of the Crown through the forfeiture of the monies that Travelers maintains should and would have been paid to Travelers absent the Crown’s admitted and erroneous omissions?; 2) Was there a corresponding deprivation suffered by Travelers?; and 3) Is there an absence of juristic reason for the Crown’s enrichment? . Ungar v. MOD Developments
In Ungar v. MOD Developments (Ont CA, 2024) the Ontario Court of Appeal dismissed an appeal from orders resulting from merged counter-applications, here arising from a commercial-residential APS purchase and renovation that had to be modified to comply with a municipal 's.111 Agreement' [under City of Toronto Act, 2006, s.111].
Here the appeal court explains the establishment of a constructive trust to allow the respondents to "collect rents from the rental units until title is transferred" from the appellant:[56] In rejecting the appellant’s position that it is entitled to collect rents from the rental units until title is transferred, the application judge found that the appellant held the rental units in trust for the respondents, and that the respondents are the beneficial owners of the units. While the application judge did not fully analyze the basis on which the appellant holds the units in trust for the respondents, I nevertheless agree with his conclusion on this issue. The doctrines of unjust enrichment and constructive trust assist in addressing this issue.
[57] Courts may recognize a constructive trust to avert unjust enrichment: Soulos v. Korkontzilas, 1997 CanLII 346 (SCC), [1997] 2 S.C.R. 217, at paras. 20 and 36. Unjust enrichment arises where (1) one party is enriched, (2) another party experiences a corresponding deprivation, and (3) no juristic reason justifies the deprivation: Soulos, at para. 20. The deprivation need not be limited to a direct loss. Rather, it can include a benefit that was never in the respondents’ possession but that would have accrued for their benefit had it not been received by the appellant: Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, at para. 44. Where unjust enrichment is established, a constructive trust may be recognized when monetary damages cannot address a deprivation that is linked to property: Professional Institute of the Public Service of Canada v. Canada (Attorney General), 2012 SCC 71, [2012] 3 S.C.R. 660, at para. 149, citing Peter v. Beblow, 1993 CanLII 126 (SCC), [1993] 1 S.C.R. 980, at p. 988.
[58] Based on the factual findings made by the application judge, it is evident that the appellant would be unjustly enriched if it were permitted to collect rent on the rental units for its own benefit before the units are transferred to the respondents. The APSs contemplate the rental units are to be transferred to the respondents as consideration for the overall transaction. This necessarily includes an expectation that the respondents, and not the appellant, would benefit from the rents to be collected from rental units as part of that consideration. The APSs never contemplated that the appellant would be entitled to receive any rent from the rental units.
[59] The APSs require the appellant to transfer the rental units to the respondents no later than 90 days after the registration of the condominium, after which it was expected that the respondents would start populating the rental units and collecting rents. This conflicts with the appellant’s separate Section 111 Agreement with the City of Toronto, which requires it to make the rental units available for prospective tenants once 70% of the condominium units are ready for occupancy. Because the occupancy threshold is likely to be reached well before the deadline for the transfer of the rental units, the appellant would remain the legal owner of the rental units pre-transfer. Absent beneficial ownership, the rental income on the rental units in that period would accrue to the appellant’s benefit, not to the respondents. The appellant’s enrichment and the respondents’ corresponding deprivation lacks a juristic basis, as it is the outcome of the terms of the Section 111 Agreement, which the appellant entered into independent of the respondents. It also conflicts with the parties’ expectations at the time they entered into the APSs.
[60] Clearly, the appellant’s enrichment and the respondents’ corresponding deprivation have a proprietary link. Further, awarding monetary damages at this stage is inadequate, as the loss has not yet occurred.
[61] In my view, while the application judge did not engage in a fulsome analysis of the issue, he was correct to recognize the respondents as beneficial owners of the rental units, as doing so averts unjust enrichment by the appellant. . 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.
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