Unjust Enrichment – Fair Is Fair!

Undue influence- money falling

 

Unjust enrichment is a legal doctrine based on the general equitable principal that no one should be allowed to profit at another’s expense. In other words, a person should pay for the reasonable value of any benefits, whether property or services, that he or she has been unfairly received and kept from another person.

Unjust enrichment is an equitable doctrine which originated in the Courts of Equity, the court system parallel to the Courts of Law until the historic merger of the two systems in the 19thCentury. The equitable remedies developed by the Courts of Equity were based on overarching moral principles designed to alleviate injustices caused by the strict application of the common law.

This is important to bear in mind because unjust enrichment is an equitable doctrine founded on moral principles rather than on legal precedent. Thus it remains a flexible tool for providing compensation in appropriate circumstances.

Unjust Enrichment – Commercial Context to Domestic Claims

The doctrine of unjust enrichment arose in the commercial world. A simple example would be a minor who signs a contract which is unenforceable because, until an adult, that minor does not have the legal capacity to enter such an agreement. Nevertheless, if the minor receives a benefit under the failed contract, the court would likely require the minor to pay for that benefit based on the law of unjust enrichment.

As an equitable doctrine there is a great deal of room for discretion by the courts in deciding what is fair in any particular situation. Thus, if duress was used to induce the minor to enter the agreement in the first place, the court would probably decline exercise its discretion to order repayment, because the claimant did not come to court with “clean hands”.

Although the doctrine of unjust enrichment originated in the commercial context, today it applies to a variety of situations. A series of Supreme Court of Canada decisions has broadened the reach of unjust enrichment to include personal relationships.

The case of Peter v. Beblow, [1993] 1 S.C.R. 980 was a crucial step in the advancement of unjust enrichment in domestic claims because the Supreme Court recognized that domestic services can support a claim for unjust enrichment. Specifically they ruled that a spouse has no legal duty to perform household work or services for other family members and may well be entitled to compensation for these services on the breakup of the marriage.

Estate Litigation

In estate litigation we see claims of unjust enrichment made where children have provided services to their parents believing they will be compensated. So for example in the case of Antrobus v. Antrobus 2010 BCCA 356 unjust enrichment was found in the case of an eldest daughter who had acted as a “child homemaker” and did all the chores and cared for her younger siblings as a teenager and young adult based on a promise, by her parents that she would inherit their entire estates for this work.

When Ms. Antrobus’ parents changed their minds many years later and transferred their property into a trust, she successfully sued them and was awarded $ 100,000.

Equity Steps in where no Legal Remedy readily available

In the context of breakdown of domestic relationships, unjust enrichment claims are most common in the case of common law marriages or quasi-spousal relationships. As mentioned above, equity steps in to alleviate hardship where there is no remedy at law. Thus, where a couple’s wealth is accumulated during the course of a legal marriage, the Divorce Act and provincial family law statutes will apply so there is a legal remedy available.

In contrast however, unmarried couples often have no such rights and thus the doctrine of unjust enrichment may fill in the gaps and redistribute wealth fairly where no legal statute applies.

Recent Clarification of the Law of Unjust Enrichment

In the recent case of Kerr v. Baranow, 2011 SCC 10, the Supreme Court of Canada revisited this area and clarified the law surrounding claims for unjust enrichment. Any professional practising in this area should review the actual decision but we have attempted in this article to simplify and explain some of the basic concepts set out in that decision.

The Three Stages of Analysis

For a claimant to establish a successful unjust enrichment claim, three conditions must be fulfilled, namely there must be:

An enrichment to the Defendant;
A corresponding deprivation suffered by the claimant; and
No juristic reason for the enrichment.

In Kerr v. Baranow, supra, at paragraphs [36-39] Cromwell J. explained that the court generally takes a straightforward economic approach to the first two conditions i.e. has the Defendant been enriched by the Plaintiff? Has the Plaintiff correspondingly been deprived in some way?

If monies were paid and received, then this question is likely relatively straightforward. When however, the issue is not money but rather the provision of services, Cromwell J. said “ …..Provided that they confer a tangible benefit on the defendant, the services will generally constitute an enrichment and a corresponding deprivation.” paragraph [113]

Thus it seems the legal analysis is relatively straightforward at the first two stages of enquiry—benefit and detriment.

The third stage of analysis—the question of a juristic reason—is more often the focus of litigation. This stage of analysis basically boils down to an assessment of whether or not it is fair or just that the Plaintiff be compensated. This is the stage that moral and policy questions come into play.

What is an Absence of Juristic Reason?

In Kerr v. Baranow, supra, Cromwell J. clarifies “absence of juristic reason” as meaning “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:” paragraph [40]

How then does a court determine whether or not there is a juristic reason which ought to deny recovery the claimant?

The earlier Supreme Court Canada decision, Garland v. Consumers’ Gas Co., 2004 SCC 25 sets out two stages for determining the presence or absence of juristic reason.

1) The claimant must show that there is no juristic reason within recognized legal categories such as contract, an intention to gift or any legal or equitable duty that would provide a juristic reason for the benefit to be kept without compensation. If the claimant is able to show no juristic reason exists under any these recognized categories then we move to the next stage where the burden falls on the defendant.

2) The defendant can rebut the prima facie case of unjust enrichment if he or she can show there is some other valid reason to deny recovery. It is at this stage that the parties’ reasonable expectations and public policy matters will be considered.

By way of illustration, Garland had involved a class-action brought by gas consumers who were assessed a one time late payment penalty (LPP) in excess of the criminal rate of interest. Although that late payment penalty had been directed by a regulatory body, the court directed that the gas utility should nevertheless repay these monies, ruling “Finally, the overriding public policy consideration in this case is the fact that the LPPs were collected in contravention of the Criminal Code. As a matter of public policy, a criminal should not be permitted to keep the proceeds of his crime” [ paragraph 57]

Monetary Award or Remedial Constructive Trust

In most cases, the remedy for unjust enrichment will be an award for financial compensation i.e. money. In some cases, however the court may recognize that money is not enough and may direct a “remedial constructive trust”. In other words, the court may direct that the Plaintiff’s interest in a particular property be recognized because of the Plaintiff’s contribution to that particular property.

In such a case the court may impose a “constructive trust” by way of remedy. This means that the court directs that the Defendant holds an interest in the property in trust for the Plaintiff. The extent of the trust imposed will be proportionate to the parties’ respective contributions to that property.

Calculation of Monetary Awards

Prior to Kerr v. Baranow, there was an argument that if the court chose to make a monetary award it would be based simply on value received—i.e. compensating the claimant on the basis of a reasonable hourly wage for the services rendered. That argument was put to rest in Kerr v. Baranow.

Where a monetary award is made, it is not simply a calculating an award based on fee for service, i.e. treating the disappointed Plaintiff as if they were hired help and entitled only to be paid wages. Kerr v. Baranow establishes that where the joint efforts of both partners result in the accumulation of wealth over time, it would be unfair to allow one party to keep a disproportionate share of the wealth and pay the other partner out as if they were hired help. Both partners are entitled to a proportionate share of the increase in wealth.

In Kerr v. Baranow the court emphasizes that unjust enrichment does not mandate a presumption of equal sharing – where the parties were engaged in a common venture where they expect to share the benefits flowing from the wealth they jointly create they will be viewed as partners in a common venture and as such, each entitled to a proportionate share.

In deciding whether the wealth has been accumulated as a result of a joint family venture, the court sets out a number of factors to consider.

Mutual effort–were the couple working collaboratively towards common goals? Did they pool their efforts? Their resources?
Economic integration – the degree of economic interdependence? Did they have a joint bank account which was used as a common purse?
Actual intent – did they intend to share their wealth? Was the title to property jointly held? Did they keep their financial affairs separate and do detailed accounting of monies spent for household expenses etc. What did they plan for property distribution on their death? i.e. what do their wills say?
Priority of the family – to what extent was the family a priority in their decision-making? Were they planning a shared future and relying on the stability of the relationship for future economic security to their own detriment? Did one partner leave the workforce to raise children? Relocate to benefit their partner’s career? Forego a promotion and move for the benefit of the family?

By way of illustration, one of trial decisions under consideration in Kerr v. Baranow was a common law couple who had lived together for 12 years and had two children. Four years into their relationship, the wife took a leave from her position as an intelligence agent with CSIS to accompany her husband to Halifax to pursue his new business. She was fully responsible on the homefront, raising their two young children and thus freeing him up to build the business. After the couple moved back to Ottawa a few years later, the business was sold for $ 11 million. On these facts, the court ruled that the husband held a a share of those proceeds in trust for the wife on the basis that that the business had been a joint family venture and that she was a co-venturer.

The wife was not given 50% of the sale proceeds of the business, however she certainly received much more than an hourly wage based on her claim for unlawful enrichment.

Defences to a Claim for Unjust Enrichment Action

By way of further illustration, here are some examples of estate litigation disputes where the courts have found that juristic reason existed and therefore dismissed the claims.

The Estate of Kask v. Welsh2000 BCSC 791 involved, among other issues, an unjust enrichment claim made by a daughter from her father’s estate based on her compensation for care provided to her ailing father. Lowry J, ruled that no such claim was made out in this case because indeed the daughter had been paid for her services in the sense that she was given a share of the estate commensurate with what she expected to receive.

Strudwick v. Morrison BCSC March 29, 1996 Kamloops Registry involved a claim by a son who, as a teenager, had worked on his father’s farm. Upon his father’s death 31 years later he claimed to be entitled to a share of the property which had greatly increased in value over the years. The court found however there was a juristic reason for the enrichment of the father based on the familial bond between the father and son. The court said specifically that as a matter of public policy such a limited economic activity between father and son ought to be encouraged without necessarily attracting a later claim for unjust enrichment. The claim was thus rejected.

Leclair v. Leclair Estate BCCA May 7, 1998 involved a claim by a widow against her late husband’s estate. By his will the deceased had divided his estate equally between the widow and his son by his first marriage. The major estate asset was an apartment building which had been the joint family undertaking of the couple but which was held legally in the Deceased’s name alone. In this case although the court found there was an unjust enrichment it declined, in its discretion to grant an award. It declined because it found any injustice had been remedied by the terms of the will leaving the widow half of the deceased estate.

McBride v. Voth, 2010 BCSC 443 . This case involved a claim by a daughter Margot, a library assistant, who lived with her mother until her death at age 89. Over the years, Margot contributed financially to the home although she did not pay rent, which permitted her to accumulate savings of approximately $50,000. As the mother’s health declined in the last two or three years before her death at 89 years of age, Margot assisted greatly with care although she was able to continue working.

The court examined Margot’s direct and indirect contributions and weighed the cost of opportunities lost to Margot as a result of this care.

The court found that both Margot and the mother had contributed financially in important ways to the household so it had been a mutually beneficial financial relationship. The two women thrived on their joint companionship and presence and supported and cared for one and other. The court thus found that Margot remained in the home based on her own personal preference unrelated to her mother’s emotional or physical needs, that she came and went as she pleased and lived an independent lifestyle.

Margot had not sacrificed her personal life or foregone other opportunities in order to care for her mother. She acted out of love and not out of an expectation to receive compensation or financial benefit. As a result her claim for unjust enrichment was rejected.

Conclusion

This paper will hopefully give the reader a taste of the flexible scope of the law of unjust enrichment. As noted above, for any professional practising in this area, a thorough review of Kerr v. Baranow is essential.

Trevor Todd

Trevor Todd is one of the province’s most esteemed estate litigation lawyers. He has spent more than 40 years helping the disinherited contest wills and transfers – and win. From his Kerrisdale office, which looks more like an eclectic art gallery than a lawyer’s office, Trevor empowers claimants and restores dignity to families across BC. He is a mentor to young entrepreneurs and an art buff who supports starving artists the world over. He has an eye for talent and a heart for giving back.

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