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Restitution (Specific) - Bankruptcy

. Sirius Concrete Inc. (Re) [where bankrupt's misrepresentation induces payment to itself just prior to bankruptcy]

In Sirius Concrete Inc. (Re) (Ont CA, 2022) the Court of Appeal considers a trust/unjust enrichment issue where a debtor to the bankrupt paid a large sum to the bankrupt just prior to bankruptcy on the basis of misrepresentations:
[14] Property of the bankrupt divisible among creditors does not include property that the bankrupt holds in trust for any other person: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”), s. 67(1)(a). It is well established that unjust enrichment, arising from certain types of debtor misconduct prior to bankruptcy, may impress funds with a constructive trust in favour of a third party and that the successful assertion of a constructive trust means that the property subject to it does not form part of the property of the bankrupt that vests in the trustee under s. 71 of the BIA: Credifinance Securities Limited v. DSLC Capital Corp., 2011 ONCA 160, 277 O.A.C. 377, at paras. 33-37.

[15] According to Lloyd W. Houlden, Geoffrey B. Morawetz and Janis P. Sarra, Bankruptcy and Insolvency Law of Canada, loose-leaf (2022-Rel. 6), 4th ed. (Toronto: Thomson Reuters, 2009), at para. 5-17:
Constructive trusts may apply in bankruptcy. If, in a bankrupt estate, the requirements for a constructive trust are met, the beneficiary of the trust will receive payment out of a fund that would otherwise form part of the assets of the bankrupt estate: Barnabe v. Touhey (1995), 1995 CanLII 1672 (ON CA), 37 C.B.R. (3d) 73, 26 O.R. (3d) 477, 10 E.T.R. (2d) 68, 1995 CarswellOnt 167 (C.A.).
[16] Similarly, in 306440 Ontario Ltd. v. 782127 Ontario Ltd. (Alrange Container Services), 2014 ONCA 548, 384 D.L.R. (4th) 278, at para. 24, this court stated:
Because a constructive trust is a proprietary remedy, it carries with it certain benefits that do not attach to personal remedies. Those benefits include the removal of the property from the estate of the bankrupt, effectively trumping the priority scheme under the bankruptcy legislation: Peter D. Maddaugh and John D. McCamus, The Law of Restitution, loose-leaf edition (Toronto: Canada Law Book, 2013), at para. 5:200.
[17] We see no reason why, in law, the facts asserted by Ayerswood could not give rise to a constructive trust as a remedy for unjust enrichment.

[18] To establish unjust enrichment, a claimant must show an enrichment, a corresponding deprivation, and the absence of a juristic reason: Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, at para. 37. The payment to Sirius by Ayerswood on March 1, 2019 would meet the requirements of a benefit and a corresponding deprivation. It is not clear that the existence of a contract would constitute a juristic reason, given that on Ayerswood’s evidence, the payment was procured by deceit and a breach of the duty of honest performance, and the amount paid was not owing.

[19] Where an unjust enrichment is established, a court may award a proprietary remedy in the form of a constructive trust where a personal remedy is inadequate and the plaintiff’s contribution is linked to the property over which the trust is claimed: Moore, at paras. 90-91. Here, a court may view a personal remedy as inadequate given the bankruptcy, and the funds paid by Ayerswood on the eve of bankruptcy may be traceable into the funds in the trustee’s hands.


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Last modified: 04-02-23
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