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Restitution - Juristic Reason - Policy Reasons and Reasonable Expectations (Stage 2)
MORE CASES
Part 2
. Kerr v. Baranow
In Kerr v. Baranow (SCC, 2011) the Supreme Court of Canada considers the 'reasonable or legitimate expectations' element of the second stage of the juristic reason restitution doctrine:G. Reasonable or Legitimate Expectations
[117] The final point that requires some clarification relates to the role of the parties’ reasonable expectations in the domestic context. My conclusion is that, while in the early domestic unjust enrichment cases the parties’ reasonable expectations played an important role in the juristic reason analysis, the development of the law, and particularly the Court’s judgment in Garland, has led to a more limited and clearly circumscribed role for those expectations.
[118] In the early cases of domestic unjust enrichment claims, the reasonable expectations of the claimant and the defendant’s knowledge of those expectations were central to the juristic reason analysis. For example, in Pettkus, when Dickson J. came to the juristic reason step in the analysis, he said that “where one person in a relationship tantamount to spousal prejudices herself in the reasonable expectation of receiving an interest in property and the other person in the relationship freely accepts benefits conferred by the first person in circumstances where he knows or ought to have known of that reasonable expectation, it would be unjust to allow the recipient of the benefit to retain it” (p. 849). Similarly, in Sorochan, at p. 46, precisely the same reasoning was invoked to show that there was no juristic reason for the enrichment.
[119] In these cases, central to the Court’s concern was whether it was just to require the defendant to pay — in fact to surrender an interest in property — for services not expressly requested. The Court’s answer was that it would indeed be unjust for the defendant to retain the benefits, given that he had continued to accept the services when he knew or ought to have known that the claimant was providing them with the reasonable expectation of reward.
[120] The Court’s resort to reasonable expectations and the defendant’s knowledge of them in these cases is analogous to the “free acceptance” principle. The notion of free acceptance has been invoked to extend restitutionary recovery beyond the traditional sorts of quantum meruit claims in which services had either been requested or provided under an unenforceable agreement. The law’s traditional reluctance to provide a remedy for claims where no request was made was based on the tenet that a person should generally not be required, in effect, to pay for services that he or she did not request, and perhaps did not want. However, this concern carries much less weight when the person receiving the services knew that they were being provided, had no reasonable belief that they were a gift, and yet continued to freely accept them: see P. Birks, Unjust Enrichment (2nd ed. 2005), at pp. 56-57.
[121] The need to engage in this analysis of the claimant’s reasonable expectations and the defendant’s knowledge thereof with respect to domestic services has, in my view, now been overtaken by developments in the law. Garland, as noted, mandated a two-step approach to the juristic reason analysis. The first step requires the claimant to show that the benefit was not conferred for any existing category of juristic reasons. Significantly, the fact that the defendant also provided services to the claimant is not one of the existing categories. Nor is the fact that the services were provided pursuant to the parties’ reasonable expectations. However, the fact that the parties reasonably expected the services to be provided might afford relevant evidence in relation to whether the case falls within one of the traditional categories, for example a contract or gift. Other than in that way, mutual benefit conferral and the parties’ reasonable expectations have a very limited role to play at the first step in the juristic reason analysis set out in Garland.
[122] However, different considerations arise at the second step. Following Peter and Garland, the parties’ reasonable or legitimate expectations have a critical role to play when the defendant seeks to establish a new juristic reason, whether case-specific or categorical. As Iacobucci J. put it in Garland, this introduces a category of residual situations in which “courts can look to all of the circumstances of the transaction in order to determine whether there is another reason to deny recovery” (para. 45). Specifically, it is here that the court should consider the parties’ reasonable expectations and questions of policy.
[123] It will be helpful in understanding how Peter and Garland fit together to apply the Garland approach to an issue touched on, but not resolved, in Peter. In Peter, an issue was whether a claim based on the provision of domestic services could be defeated on the basis that the services had been provided as part of the bargain between the parties in deciding to live together. While the Court concluded that the claim failed on the facts, it did not hold that such a claim would inevitably fail in all circumstances: p. 991. It seems to me that, in light of Garland, where a “bargain” which does not constitute a binding contract is alleged, the issue will be considered at the stage when the defendant seeks to show that there is a juristic reason for the enrichment that does not fall within any of the existing categories; the claim is that the “bargain” represents the parties’ reasonable expectations, and evidence about their reasonable expectations would be relevant evidence of the existence (or not) of such a bargain.
[124] To summarize:1. The parties’ reasonable or legitimate expectations have little role to play in deciding whether the services were provided for a juristic reason within the existing categories.
2. In some cases, the fact that mutual benefits were conferred or that the benefits were provided pursuant to the parties’ reasonable expectations may be relevant evidence of whether one of the existing categories of juristic reasons is present. An example might be whether there was a contract for the provision of the benefits. However, generally the existence of mutual benefits flowing from the defendant to the claimant will not be considered at the juristic reason stage of the analysis.
3. The parties’ reasonable or legitimate expectations have a role to play at the second step of the juristic reason analysis, that is, where the defendant bears the burden of establishing that there is a juristic reason for retaining the benefit which does not fall within the existing categories. It is the mutual or legitimate expectations of both parties that must be considered, and not simply the expectations of either the claimant or the defendant. The question is whether the parties’ expectations show that retention of the benefits is just. . Tsai v. Dugal [mutual benefit conferral]
In Tsai v. Dugal (Ont CA, 2022) the Court of Appeal considered restitution in the form of the 'joint family venture', a form of mutual benefit conferral:[13] Nor do we find any error in the application judge’s part in concluding that, even if there had been unjust enrichment, the appellant had not discharged her onus of establishing a joint family venture. The appellant does not argue that she did not apply the right test as set out in Kerr v. Baranow, 2011 SCC 10, [2011] 1 SCR 269. She was not satisfied that there was mutual effort, economic integration, actual intent, and priority of the family. Despite the fact that the couple lived together and apparently made some real estate investments cooperatively, she found that “the evidence indicates that they did not go so far as to be able to be described as having pooled their efforts and worked toward a common goal.” They did not fully integrate their finances. None of the properties were held jointly. They had no joint bank accounts or separate vehicles and seem to have kept much of their respective assets separate from each other. . Palkowski v. Ivancic [sham contract]
In Palkowski v. Ivancic (Ont CA, 2016) the Court of Appeal upheld a trial level finding of unjust enrichment against parties who had entered into a real estate conveyance to avoid creditors. The court held that there was no juristic reason for the resulting enrichment and deprivation, since the transaction was a 'sham':[8] The trial judge found that the appellant had been enriched and that there was a corresponding deprivation on the part of the respondents. He concluded that there was no juristic cause to justify the enrichment. The appellant submits that in this respect the trial judge erred because the existence of a contract can constitute a juristic reason for an enrichment. (See: Garland v. Consumers’ Gas Co. 2004 SCC 25 (CanLII)). The existence of the agreement of purchase and sale, they argue, constitutes an absolute bar to a claim for unjust enrichment.
[9] This submission ignores the trial judge’s unchallenged finding with respect to the agreement of purchase and sale. The trial judge found that the agreement was a “sham” transaction. Thus, as between the appellant and respondent, there was no contract to bar the claim for unjust enrichment. . 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 as follows on the interaction of the law of unjust enrichment as it was influenced by the presence of unconscionability on the part of the ultimate receipient of the funds:(ii) Unjust enrichment
[21] The trial judge correctly set out the requirements for a claim in unjust enrichment: (1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) the absence of a juristic reason for the enrichment. See Pettkus v. Becker, 1980 CanLII 22 (SCC), [1980] 2 S.C.R. 834, at p. 848; and Garland v. Consumers’ Gas Co., 2004 SCC 25 (CanLII), [2004] 1 S.C.R. 629, at para. 30.
[22] The motion judge held that third parties such as the appellants could not advance a claim for unjust enrichment unless Ms. Spinks, the gambler, also had that right. He held that while OLGC was enriched, and Ms. Spinks was correspondingly deprived, there were juristic reasons for the enrichment – namely, a valid gambling contract and the fact that OLGC was a bona fide purchaser for value without notice that it was receiving money obtained by fraud.
[23] The motion judge did not consider the possibility that the juristic reasons for the enrichment might be vitiated on the ground of unconscionability. The appellants pleaded in their statement of claim that OLGC received an “unconscionable benefit.” If OLGC knew that Ms. Spinks was addicted to gambling, and was in fact unable to refrain from losing money, but allowed her to continue gambling nonetheless, I am not convinced that the appellants’ claim in unjust enrichment would necessarily fail.
[24] This approach was adopted by the Court of Appeal of the Supreme Court of Victoria in Kakavas v. Crown Melbourne Ltd. & Ors, [2012] VSCA 95, aff’d [2013] HCA 25. In that case, the appellant claimed that he was a “pathological gambler” and that the casino’s actions in luring him back to the casino, and in encouraging his gambling, were unconscionable.
[25] The court described, at paras. 17-19, the parameters of unconscionability in that context as encompassing circumstances in which: (i) a party to a transaction is under a special disability in dealing with the other party, such that there is no reasonable degree of equality between them; and (ii) the disability is sufficiently evident to the stronger party to make it prima facie unfair for him or her to procure or accept the weaker party’s agreement to the transaction in the circumstances. The common characteristic of adverse circumstances constituting a special disability is that they have the effect of placing one party at a serious disadvantage with respect to the other party. The focus is on the conduct of the stronger party in attempting to enforce or retain the benefit of a transaction with a person under special disability, where it is not consistent with equity or good conscience to allow him or her to do so.
[26] Following trial, the plaintiff’s claim in Kakavas was dismissed on the ground that he did not suffer from the special disability or disadvantage of addiction to gambling. Appeals to the Court of Appeal and the High Court of Australia were dismissed. Again, while the plaintiff lost because of the factual findings made in that case, a finding of unconscionability – knowingly taking advantage of an addicted gambler – could have opened the door to compensation. . Reiter v. Hollub [joint family venture]
In Reiter v. Hollub (Ont CA, 2017) the court discusses principles of the restitutionary doctrine of unjust enrichment, particularly whether the remedy should be monetary or proprietary, in the context of a joint family venture:[19] In Kerr v. Baranow, at para. 46, the Supreme Court outlined two possible remedies where unjust enrichment is established – a monetary award or a proprietary award. The court counselled, at para. 47, that the first remedy to consider is always the monetary award and that, in most cases, a monetary award is sufficient to remedy the unjust enrichment.
[20] To obtain a proprietary award, the person advancing the claim based on unjust enrichment must demonstrate that monetary damages are insufficient and that there is a sufficiently substantial and direct causal connection between his or her contributions and the acquisition, preservation, maintenance or improvement of the disputed property: Kerr, at paras. 50-51. A minor or indirect contribution will not suffice.
[21] The court held that there are two different approaches to valuation for a monetary award: Kerr, at para. 55. First, a monetary award may be based on a quantum meruit, value received or fee-for-services basis. Second, a monetary award may be based on a value survived basis. This is where the joint family venture analysis becomes relevant.
[22] To receive a monetary award on a value survived basis, the claimant must show that there was a joint family venture and that there was a link between his or her contributions to the joint family venture and the accumulation of assets and/or wealth: Kerr, at para. 100. Whether there is a joint family venture is a question of fact to be assessed in light of all of the relevant circumstances, including the four factors noted above – mutual effort, economic integration, actual intent and priority of the family: Kerr, at para. 100.
[23] Justice Cromwell was careful to note that cohabiting couples are not a homogenous group: Kerr, at para. 88. The analysis must therefore take into account the particular circumstances of each relationship. The emphasis should be on how the parties actually lived their lives, not on their ex post facto assertions or the court’s view of how they ought to have done so: Kerr, at para. 88.
[24] While the four factors identified above are helpful to determine whether the parties were engaged in a joint family venture, there is no closed list of relevant factors: Kerr, at para. 89. The factors Cromwell J. suggested were not a checklist of conditions, but a useful approach to a global analysis of the evidence and examples of relevant factors that a court may take into account: Kerr, at para. 89. . Granger v. Granger [mutual benefit conferral]
In Granger v. Granger (Ont CA, 2016) the Court of Appeal reviews the law of unjust enrichment (restitution), here where there is 'mutual benefit conferral', such as with the provisions of services towards a joint family venture, which should be assessed at the second juristic reason stage:[37] As the trial judge emphasized, the burden of establishing the conferral of an enrichment, a corresponding deprivation, and the absence of an established juristic reason for the enrichment all lie upon the claimant. However, he failed to recognize that where the defendant claims a set-off because of the mutual exchange of benefits, the allocation of the burden of proof is more nuanced.
c. The correct approach: Kerr v. Baranow
[38] The more nuanced allocation is explained by the Supreme Court of Canada in Kerr v. Baranow, 2011 SCC 10 (CanLII), [2011] 1 S.C.R. 269. Cromwell J., writing for a unanimous court, focused directly on mutual benefit conferral and explained at what point in the analysis it should be considered. He stated that, generally, mutual benefit conferral is to be considered at the defence or remedy stage. In limited cases it “can be taken into account at the juristic reason stage of the analysis, but only to the extent that it provides relevant evidence of the existence of a juristic reason for the enrichment”: para. 109.
[39] Cromwell J. explained the reason for this approach. He explained, at para. 110, that not addressing mutual benefits at the benefit/detriment stage of the analysis “is consistent with the quantum meruit origins of the fee-for-services approach and, as well, with the straightforward economic approach to the benefit/detriment analysis which has been consistently followed by this Court”. At para. 112, he added that “refusing to take mutual benefits into account at the benefit/detriment stage is also supported by a straightforward economic approach to the benefit/detriment analysis which the Court has consistently followed.”
[40] Cromwell J. stressed that this approach should be used where the alleged enrichment consists of services. He said at para. 113: “Provided that they confer a tangible benefit on the defendant, the services will generally constitute an enrichment and a corresponding deprivation. Whether the deprivation was counterbalanced by benefits flowing to the claimant from the defendant should not be addressed at the first two steps of the analysis” (emphasis added).
[41] Cromwell J. went on to state that mutual benefit conferral may in some cases be considered at the juristic stage of the analysis but only to shed light on the parties’ reasonable expectations. He explained at para. 115: “given that the purpose of the juristic reason step in the analysis is to determine whether the enrichment was just, not its extent, mutual benefit conferral should only be considered at the juristic reason stage for that limited purpose.”
d. The Kerr approach applies here
[42] Counsel for the respondent urged in oral argument that Cromwell J.’s comments in Kerr regarding the appropriate analytical approach to mutual benefit conferral applied only to the particular context of a joint family venture. I do not agree. While Kerr and its companion case Vanasse v. Seguin did involve joint family ventures, Cromwell J.’s comments at paras. 109-115 are intended to be of more general application. I say this for five reasons.
[43] First, the structure of Kerr itself confirms this view. At paras. 80-100, Cromwell J. outlines the proper approach to a claim for monetary relief based on unjust enrichment in a joint family venture. Where a joint family venture has led to wealth generation, the remedy should be calculated based on the share of those assets proportionate to the claimant’s contributions. Then, at paras. 101-108, Cromwell J. addresses the difference between that situation and one where relief must be calculated on a “fee for services” basis. Both may involve mutual benefit conferral. In the joint family venture context, the analysis takes mutual benefit conferral into account in assessing relative contribution to the joint assets. By contrast, in the fee for services approach, mutual benefit conferral is taken into account in the manner outlined at paras. 109-115 – namely, it is taken into account as a “set off”, typically at the defence stage of an unjust enrichment analysis.
[44] Second, Cromwell J. explicitly draws on non-family case law in explaining why mutual benefits should not be taken into account at the “benefit/detriment” stage of the analysis. At para. 112, Cromwell J. holds as follows: “[r]efusing to take mutual benefits into account at the benefit/detriment stage is also supported by a straightforward economic approach to the benefit/detriment analysis which the Court has consistently followed. Garland is a good example” (emphasis added). At para. 113, he goes on to state that although Garland dealt with payment of money, the same approach should apply where the alleged enrichment consists of services. These references to Garland v. Consumers’ Gas Co., 1998 CanLII 766 (SCC), [1998] 3 S.C.R. 112 and the court’s “straightforward economic approach” make it clear that Cromwell J. viewed his comments regarding the appropriate point at which to consider off-setting benefits as having a more general application outside of the family context.
[45] Third, scholarly commentary suggests that Cromwell J.’s comments regarding the appropriate stage of the analysis to consider off-setting benefits apply outside the family context. In P.D. Maddaugh and J.D. McCamus, The Law of Restitution (loose-leaf), Vol. II (Toronto: Thomson Reuters, 2016), the authors point to “housekeeper” cases as an example of where Cromwell J.’s comments would apply, at 34:700. They explain as follows:Where, in the typical case, a housekeeper is persuaded by an elderly gentleman to provide him with housekeeping services until his death on the basis of an unenforceable promise that he will leave his home by will to the housekeeper, housekeepers have been allowed to bring successful quantum meruit claims for the reasonable value of the services rendered in the expectation of compensation. In such a case, it might be argued that the free room and board, if any, provided by the deceased could constitute a mutual benefit that ought to be taken into account in reducing the award. The correct analysis of such a problem, in our view, would turn on whether the room and board provided to the housekeeper was understood by the parties to constitute partial compensation for the services rendered. If the parties did indeed have such an understanding, it seems inescapable that the value of that benefit should be deducted from the ultimate fee-for-services award. If, on the other hand, the parties’ understanding was that the room and board was being provided gratuitously and that the only compensation for the services rendered would be the home, no deduction would be appropriate, in cases where the facts concerning the parties’ intentions on this point were less than clear, the Court would be confronted with a difficult factual determination … In Kerr, the discussion of the mutual benefit issue in a fee-for-services context is quite focused on the juristic reason test from the Garland calculus and the perceived problem of determining precisely where the mutual benefits would be taken into account in the Garland calculus. For Cromwell J., the correct approach in this context would be not to consider the mutual benefits provided by the defendant at the “benefit/detriment” phase of the Garland analysis. One would simply ask whether a benefit was conferred and, if so, whether there was a corresponding deprivation suffered by the plaintiff. Mutual benefits provided by the defendant might be relevant, in the Court’s view, in the juristic reason stage of the analysis. The fact that parties had agreed to exchange benefits might be relevant in establishing what the “reasonable expectations” of the parties are, a factor which, as noted above, might be relevant in that context. [Emphasis added].
[46] Fourth, provincial appellate courts have applied Kerr outside the family context on many occasions: see, for example Consulate Ventures Inc. v. Amico Contracting & Engineering (1992) Inc., 2011 2011 ONCA 418 (CanLII), ONCA 418, 278 O.A.C. 216, at paras. 44-57; Aviva Insurance Company of Canada v. Lombard General Insurance Company of Canada, 2013 ONCA 416 (CanLII), 116 O.R. (3d) 161, at paras. 47-60; Clarke v. Johnson, 2014 ONCA 237 (CanLII), 318 O.A.C. 186, at paras. 62-72; Haigh v. Kent, 2013 BCCA 380 (CanLII), 364 D.L.R. (4th) 544, at paras. 31-48; Economical Mutual Insurance Company v. The Bank of Nova Scotia et al., 2015 NLCA 29 (CanLII), 367 Nfld. & P.E.I.R. 297, at paras. 27-41.
[47] Of particular note on this point is the decision in Watson v. Bank of America, 2015 BCCA 362 (CanLII), 79 B.C.L.R. (5th) 1. Watson was a class action certification case. Merchants proposed to certify a class to sue credit card companies for costs imposed by their credit card infrastructure. They advanced various causes of action, including unjust enrichment. One of the defence arguments against certification was that the plaintiffs would not be able to demonstrate a “net” harm to the merchants because of various off-setting economic effects: paras. 162-165.
[48] The court analysed the significance of this argument with respect to the unjust enrichment claim at paras. 175-181. Interestingly, the defendants attempted to use Kerr to support their off-set argument. They relied on Cromwell J.’s comment, at para. 104, that mutual enrichments may be considered at the juristic reason stage “to the extent that the provision of reciprocal benefits constitutes relevant evidence of the existence (or non-existence) of juristic reason for the enrichment”. The court rejected this argument. The court noted that the defendants “overstate the import” of the comments made in Kerr, a family case. But it nevertheless held, relying on Garland, that the appropriate stage to consider off-setting benefits is at the second stage of the analysis, where the defendants would bear the onus of proof.
[49] Fifth, and finally, applying the same approach in family venture and non-family venture cases promotes the overall doctrinal coherence of the law of unjust enrichment. Cromwell J.’s decision in Kerr was itself an attempt to harmonize various strains of the unjust enrichment jurisprudence. As he noted at para. 33, “there is and should be no separate line of authority for ‘family’ cases developed within the law of unjust enrichment.” Rather, the rights and remedies for unjust enrichment should be the same for all cases.
[50] For all these reasons, the principle in both family and non-family cases of mutual benefit conferral is that any alleged off-setting benefits should be considered at the defence/remedy stage of the analysis where the defendant bears the onus of proof. . Moore v. Sweet
In Moore v. Sweet (SCC, 2018) the Supreme Court of Canada considered the facts of the case on the second stage of the restitution (unjust enrichment) 'juristic reason' inquiry, that of policy reasons:(b) Second Stage — Policy Reasons Militate in Favour of Michelle
[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).
[84] It is clear that both parties expected to receive the proceeds of the life insurance policy. Pursuant to the Oral Agreement, Michelle had a contractual right to remain designated as beneficiary so long as she continued to pay the premiums and kept the policy alive for the duration of Lawrence’s life. Although she could have better safeguarded her interests by requiring Lawrence to designate her irrevocably, her expectation with respect to the insurance money — rooted in the Oral Agreement — is clearly reasonable and legitimate.
[85] Risa, by contrast, expected to receive the insurance money upon Lawrence’s death by virtue of the fact that she had been validly designated as irrevocable beneficiary. Because Risa was designated after Lawrence and Michelle entered into the Oral Agreement, however, I am of the view that her expectation cannot take precedence over Michelle’s prior contractual right to remain named as beneficiary, regardless of whether Risa knew that this was actually the case. To echo the findings of the application judge:While there is no evidence that [Risa] knew that [Michelle] was paying the premiums on the Policy, she was aware that [Lawrence] was not in a position to do so. She says that she believed that [Lawrence’s] brother was paying the premiums, but there is nothing in the record regarding the brother’s motivation or intentions that would make [Risa’s] belief in such action reasonable. [para. 49] [86] Moreover, I am not persuaded that the oral nature of the agreement between Michelle and Lawrence undermines Michelle’s expectation or serves as a public policy reason that favours Risa’s retention of the proceeds. The legal force of unwritten agreements has long been recognized by common law courts. And while “kitchen table agreements” may in some cases result in situations where parties neither understand nor intend the legal significance of their agreement, this is not such a case; the parties do not dispute the finding that Michelle and Lawrence did in fact have an Oral Agreement that the former would pay the premiums on the policy and, in exchange, would be entitled to the proceeds of the policy upon the latter’s death (Superior Court decision, at para. 17; Court of Appeal decision, at para. 22). Indeed, the existence of the Oral Agreement is quite clearly corroborated by Michelle’s payment of the premiums following her separation from Lawrence.
[87] As a final point, it appears to me that the residual considerations that arise at this stage of the Garland analysis favour Michelle, given that her contribution towards the payment of the premiums actually kept the insurance policy alive and made Risa’s entitlement to receive the proceeds upon Lawrence’s death possible. Furthermore, it would be bad policy to ignore the fact that Michelle was effectively tricked by Lawrence into paying the premiums of a policy for the benefit of some other person of his choosing.
[88] For the foregoing reasons, I would conclude that Risa has not met the burden of rebutting Michelle’s prima facie case. It follows, therefore, that Michelle has made out each of the requisite elements of the cause of action in unjust enrichment.
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