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Substantive v Remedial Constructive Trusts

Substantive v Remedial Constructive Trusts

Trainer v Tractorhill Sales Ltd v Teck Metals Ltd 2018 BCSC 2043 discusses the difference between a substantive constructive trust and a remedial constructive trust.

In BNSF Railway Co v Teck Metals Ltd 2016 BCCA 350, the Court of Appeal reviewed the development of the constructive trust in Canada, the United Kingdom and the United States in order to consider whether constructive trusts were only available to remedy unjust enrichment and breach of fiduciary duty or whether they were also available on a wider substandard or institutional basis. ( They are available for ” good conscience” reasons).

The Trainer decision involved a plaintiff who had pled unjust enrichment and constructive trust in relation to the claims pertaining to the shares and warrants of a company.

The Law

A substantive constructive trust is distinguished from a remedial constructive trust in that a substantive constructive trust, the acts of the parties in relation to some property are such that those acts or later declared by a court to have given rise to a substantial of constructive trust and to of done so at a time when the acts of the parties brought the trust into being.

The difference between a substantial of constructive trust and a resulting trust may, in cases where the property reverts to the settlor, be no more than a matter of terminological preference.

In a remedial constructive trust on the other hand, the acts of the parties are such that a wrong is done by one of them to another so that, while no substantial trust relationship is then and there brought into being by those acts, nonetheless a remedy is required in relation to property and the court grants that remedy in the form of a declaration which when the order is made creates a constructive trust by one of the parties in favor of another party.

In BNSF Railway the appeal court concluded that in Canada, a remedial constructive trust is available to remedy unjust enrichment and breach of fiduciary duty but it is also open to the court to develop the law pertaining to substantial of constructive trusts on a case-by-case basis where “good conscience so requires”. The BNSF decision followed Soulos v Korkontzilas (1997) to SCR at paragraph 34.

In both substantial and remedial constructive trusts, there are two criteria that must be met:

a) The plaintiff must demonstrate a substantial and direct link, a causal connection or a nexus between his or her claim in the property which is the subject of the substantial of construction trust or the proposed remedial constructive trust ( Pro- Sys consultants Microsoft Corporation 2013 SCC at paragraph 92;

b) The plaintiffs must demonstrate that a monetary award is insufficient or an appropriate in the circumstances. Pro-Cys at para. 92,.

The election in this regard need not be made until the end of trial but at that stage the plaintiff must select and if you she Alexa constructive trust he or she must be able to show that monetary damages are insufficient or inappropriate.

The court cites BSNF at paragraph 85 as authority for the factual basis for asserting that damages would be an insufficient remedy should be pled.

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