In an action for fraud and misrepresentation Wang v Wang 2020 BCCA 15 the BC Appeal court found the trial judge was incorrect in disallowing a claim by reason that the plaintiff was not coming to court “with clean hands” while seeking an equitable remedy.
The appeal court held that the plaintiff was not barred from an equitable remedy as the clean hands doctrine was narrow and did not encompass her activities.
The clean hands doctrine decrees that “he who comes to equity must come with clean hands” Mayer v Mayer 2012 BCCA 77.
The doctrine is narrowly applied, however, and does not entitle the court to Candace all aspects of the parties behavior knowing to the court. Its use must be to the circle behavior related to the relief sought.
In DeJesus v Shariff 2010 BCCA 121 at para. 85 . The court adopted this passage from Snell’s Equity 30th ed. at 32:
The maximum must not be taken to widely. Equity does not demand that it’s suitors shall have blameless lives. What bars the claim is not a general depravity that one which has an immediate and necessary relation to the equity sued for, and is not balanced by any mitigating factors.
The court also adopted the statement from the Principles of Equitable Remedies, 2001 at 169 – 170:
“It must be shown in order to justify refusal of relief, that there is such an immediate and necessary relation between the relief sought and the delinquent behavior in question that it would be unjust to grant that particular relief. So, what was once emphasize that general fraudulent conduct signifies nothing; the general dishonesty of purpose signifies nothing; but attempts to overreach go for nothing; and an intention and designed to receive may go for nothing, unless all this dishonesty of purpose, all this fraud, all this intention and design, can be connected with the particular transaction, and not only connected with the particular transaction, but must be made to be the very ground upon which the transaction took place, and must have given rise to this contract.”
Kim v Choi 2019 BCSC 1792 brought an application for special costs against the defendant for alleged reprehensible conduct but the court refused special costs and reviewed the law re same.
Special costs may be awarded where the conduct of a party is reprehensible.
Reprehensible conduct includes conduct that is scandalous, or outrageous, or milder forms of misconduct that are deserving of reproof or rebuke. Garcia v . Crestbrook Forest Industries Ltd (1994) 119 DLR (4th) 740 at 747.
In Mayer v Osborne Contracting Ltd. 2011 BCSCX 914 at para. 11 the court set out those circumstances that warranted the attraction of special costs:
1) Where a party pursues a meritless claim and his reckless with regard to the truth;
2) where a party makes improper allegations of fraud, conspiracy, fraudulent misrepresentation, or breach of fiduciary duty;
3) where a party has displayed ”reckless indifference” by not recognizing early on that it’s claim was manifestly deficient;
4) where a party made the resolution of an issue, far more difficult than it should have been;
5) where a party who is in a financially superior position to others brings proceedings, not with a reasonable expectation of a favorable outcome, but in the absence of merit in order to impose a financial burden on the opposing party;
6) where a party presents a case so weak that it is bound to fail, and continues to pursue its meritless claim after it is drawn to its attention that the claim is without merit;
7) where a party brings a proceeding for an improper motive;
8) where a party maintains unfounded allegations of fraud or dishonesty;
9) where a party pursues claims frivolously or without foundation
Special costs are punitive and serve to chastise the offending party. Ip v ICBC (1994) 89 BCLR (2d) 251 at para.7
Special costs are the exception. Special cautioned not be awarded were the only issue is a party’s credibility. Moreover, a party who lies, falsifies evidence of attempts to deceive the court can be subjected to special costs. Hoffman v Percheson 2011 BCSC 1175 at paragraphs 19 – 23.
Special costs may also be awarded where a litigant makes allegations of fraud (or undue influence) without foundation. A prima facie case must exist before such a serious allegation is made
An allegation of fraud, willful misstatements, or other such claims made against a person casts a serious pall over his or her reputation in the community. Very careful consideration must be given by the defendant before making such serious allegations.
At the very least, a prima facie case must exist if it does not been special costs by way of chastisement is a reminder to the defendant to exercise better care in the future.
Nouthi v Pourtaghi 2019 BCSC 794 referred to the badges of fraud” as referred to in Dexia Credit Local v. Rogan, 2008 BCSC 1406:
[23] … In Banton v. Westcoast Landfill Diversion Corp., 2004 BCCA 293 (B.C. C.A.) Braidwood J.A., writing for the court, cited at para. 5 a number of factual indicia of fraudulent intention or “badges of fraud” from Frimer v. Lercher, [1984] B.C.J. No. 728 (B.C. S.C.):
(1) The state of the debtor’s financial affairs at the time of the transaction, including his income, assets and debts;
(2) The relationship between the parties to the transfer;
(3) The effect of the disposition on the assets of the debtor, i.e. whether the transfer effectively divests the debtor of a substantial portion or all of his assets;
(4) Evidence of haste in making the disposition;
(5) The timing of the transfer relative to notice of the debts or claims against the debtor;
(6) Whether the transferee gave valuable consideration for the transfer.
Suspicious circumstances which our courts may characterize as “badges of fraud” include the following:
1) Secrecy surrounding the transaction
2) Cash payments were made
3) No change of possession occurred after the conveyance;
4) Transfer to non-arm’s-length person;
5) The transferor has few remaining assets;
6) The transfer was effected with unusual haste;
7) Grossly inadequate consideration was paid;
8) A benefit was retained by the transferor under the settlement;
9) The transfer was made in the face of potential litigation;
10) Lack of accurate documentation supporting the transaction.
These “badges of fraud” are enumerated in Bank of Montreal v. Vandine (1953) 1 D.L.R. 456.
Generally speaking the courts looks for badges of fraud when deciding if fraud was present or not.
Sojka v Sojka 2018 BCSC 562 reviews the law with respect to enforcement of a settlement reached at a mediation where both parties were represented by counsel, and one party attempted to renege on the agreement by utilizing what the court regarded as “settler’s remorse.”
The plaintiff brought on a court application to enforce the minutes of settlement that were signed by the parties and their counsel, and relied upon S 8(3) of the Law and Equity act and the inherent jurisdiction of the court to enforce the terms of settlement, which the court in fact did.
The defendants in their attempt to renege on the settlement argued that they were mistaken as to certain evaluations of property at the mediation, which the court found was not in fact the case, finding that the minutes of settlement and release constituted a clear agreement between the parties.
The court followed the decision of Roumanis v Hill 2013 BCSC 1047 as to when the enforceability of a settlement agreement ought to be decided on a summary procedure.
The court stated:
The question of the proper procedure to adjudicate the enforceability of the settlement was addressed in Mackenzie v Mackenzie (1975) BCJ 1114 were the court reviewed the authorities and concluded that the court ought to enforce settlement upon application in the action of justice could be done by proceeding summarily.
The court found that there is a sound policy for the courts to enforce the terms of a valid settlement agreement as stated by the BC Court of Appeal in Robertson v Walwyn et al (1988) 24 BCLR )2d) 385 (BCCA):
“Justice affects both parties and requires a balancing of their interests. The fact that the settlement agreement may not have been a desirable one from the point of view of the Robertsons, or the fact that they may have received for advice from their lawyer, or the fact that the later change their minds, cannot provide grounds for setting aside the settlement agreement, or refusal to enforce it. And it would do scant justice to the interests of the defendants in this case to recognize the validity of the settlement agreement, and that it will ultimately prevail, but to refuse to enforce it at this time and in these proceedings.”
Hawitt v Campbell 1983 Carswell BC 199 (BCCA) set out that a court could refuse to exercise its discretion to perfect a settlement where:
1. There was a limitation on the instructions of the solicitor known to the opposite party;
2. There was a misapprehension by the solicitor making the settlement of the instructions of the client or the facts of the type that would result in an justice or make it unreasonable or unfair to enforce the settlement;
3. There was fraud or collusion;
4. There was an issue to be tried as to whether there was such a limitation, misapprehension, fraud or collusion in relation to the settlement.
Newman v Beta Maritime Ltd 2018 BCSC 1442 discussed the situation where money “had and received” is a cause of action which is available where money was paid by mistake, acquired by way of fraud or paid under duress.
The issue of the law relating to where money was paid by mistake was discussed in International longshore and Warehouse Union local 502 v Ford 2016 BCCA 226 at paragraphs 23-26 which stated:
“ as a cause of action, money had and received resembles and is related to the right of recovery for money paid under mistake”
At its most basic, money had and received is an action for the return of money which the defendant is received, but which the law says it would be unjust for him or her to keep. In Storthoaks v. Canada Ltd Oil Mobil 1976) 2SCR 147 , the Supreme Court of Canada discussed the rationale underlying the right to recover money had and received as a result of mistake. In explaining the rationale behind the right of recovery, the court relied on Kelly v Solari (1841) 152 E.R. 24 which stated in part:
“ I think that where money is paid to another under the influence of mistake, that is, upon the supposition that a specific fact is true, which would entitle the other to the money, but which fact is untrue, and the money would not have been paid if it had been known to the payer that the fact was untrue, an action will lie to recover it back, as it is against conscience to retain it; though demand may be necessary in those cases in which the party receiving may have been ignorant of the mistake. “
The court went on to clarify what is meant by circumstances were would be against conscience for the payee to retain money:
“ the court did not purport to limit the right to recover money paid under a mistake of fact to cases in which would be against conscience for the recipient of the money to retain it. What the judge said was that where money is paid on the supposition that a specific fact is true which would entitle the other to receive it, which fact is untrue and the money would not have been paid if the fact of been known to be untrue, it can be recovered and it is against conscience to retain it. In other words given the circumstances the court outlined, is against conscience for the recipient to keep the money paid.”
The claim for monies had and received is very similar to that of unjust enrichment, however the BC Court of Appeal has stated on several occasions that money had and received shall continue to be treated as a distinct cause of action, as was stated in the longshore case at paragraph 24.
The Supreme Court of Canada has held that banks were entitled to recover the funds from the plaintiff where money was paid under mistake of fact. The mistake was that the cheque was genuine. This is not a mistake relating to the plaintiff’s right to receive the funds; by all accounts the plaintiffs were entitled to receive funds would have received a forged cheque. The court concluded that it is not necessary for the mistake to relate to the recipient’s entitlement to receive the funds.
“Fraudulent beneficiaries” has arisen in a claim that I am aware of currently before the courts, where it is alleged that the deceased was fooled to leave his entire estate to someone who he believed was his natural son from a long-ago relationship, but the son actually knew he was not the progeny of the deceased, yet played along with the deceased to allow him to believe that he was.
The estate has been challenged on the basis that the testamentary gift to the purported son should be invalidated as a result of the beneficiary perpetrating a fraud on the testator in obtaining the legacy by virtue of that fraud.
The facts are contentious yet there is a long established principle in law that “ where a legacy is given to a person under a particular character which he has falsely assumed for the purposes obtaining the bounty, and which alone is shown or is inferred to have deceived the testator, and to have been the motive of the bounty, the law on the ground of fraud does not permit the donee to avail himself of the legacy; but a false reason given for the legacy is not in itself sufficient to destroy it.”
Halsbury’s Laws of England , fourth edition, volume 17(2) at 326:
Kennell v Abbott (1799) 4 Ves.802, ER 416 is a leading case on the treatment of legacies obtained through fraud. In this decision, a woman died, leaving a legacy to my husband. The two were allegedly married but unknown to the woman, the man when she assumed was her husband was married to another woman. The master of the rules ruled that the husband was not entitled to his legacy by reason of the fraud that he had perpetrated.
How to defeat a testamentary gift:
In order to defeat a testamentary gift in these circumstances, the following must be shown:
1) A legacy given to a person of a character which the legatee does not fill and
2) There was a fraudulent assumption of that character, and
3) The testator must have been deceived by that fraud
Posner v Miller (1953) 1 All E.R. 1123
A testamentary gift to a purported son would only be invalid if there is proof of fraudulent and intentional misrepresentations that motivated the deceased to dispose of property in a manner contrary to his true intention. It is not sufficient to show innocent misrepresentation. Even if fraud is proven, the law requires proof that the false character was the sole motive for the bounty Kennell, Re Isaacs (1954) OR 942 C.A.
If there is evidence that the testator may have been motivated by other factors, then the gift is valid, despite the fraud. For example, the bequest to illegitimate children that the testator thinks are his own should stand, because it can be said that the love and affection must also have affected the testator’s intention to provide for the children and the fraud was not the sole motive or inducement for the legacy. Feeney, The Canadian Law of Wills at 3.18
The subsequent English case of Re Boddington: (1883) 22 Ch.D 597 at 112 applied the authority in the Kennell decision and held:
“where a legacy is given to a person under a particular character which she has falsely assume, and which alone can be presumed to be the motive of the bounty, the law will not permit him to avail himself of it, and therefore he cannot demand his legacy. In order, therefore, that the rule from Kennell may come into operation. There must be two things (1) there must be of the false assumption of the character of the legatee, and secondly, there must be evidence that the false character was the motive of the bounty, or a presumption or inference to that effect.
A misrepresentation can be made by silence in the following circumstances, as adopted by the Court of Appeal in Sidhu estate v. Bains (1996) 25 BCLR (3d) 41 BCCA at 101:
“A misrepresentation may be made by silence, when either the represented , or a third person in his presence, or to his knowledge, state something false, which indicates to the represented that the represented either as being, or will be, misled, unless the necessary correction be made. Silence under such circumstances is either a tacit adoption by the party of another’s misrepresentation as his own, or tacit confirmation of another’s error as truth“
Fraud is a deception deliberately practiced in order to secure unfair or unlawful gain (adjectival form fraudulent; to defraud is the verb, and the Badges of Fraud are used by the court s as rough gauge as to whether Fraud exists in the situation or not..
As a legal construct, fraud is both a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud and/or recover monetary compensation) and a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities).
Defrauding people or organizations of money or valuables is the usual purpose of fraud, but it sometimes instead involves obtaining benefits without actually depriving anyone of money or valuables, such as obtaining a drivers license by way of false statements made in an application for the same.
There are a number of articles relating to fraud on this website, most of which deal with Fraudulent Transactions or conveyances to try and hinder creditors such as beneficiaries.
Undue influence is also a civil form of fraud and yesterdays blog discusses in some detail the fraudulent aspect involved in undue influence
The Badges of Fraud
Suspicious circumstances which our courts may characterize as “badges of fraud” include the following:
1) Secrecy surrounding the transaction
2) Cash payments were made
3) No change of possession occurred after the conveyance;
4) Transfer to non-arm’s-length person;
5) The transferor has few remaining assets;
6) The transfer was effected with unusual haste;
7) Grossly inadequate consideration was paid;
8) A benefit was retained by the transferor under the settlement;
9) The transfer was made in the face of potential litigation;
10) Lack of accurate documentation supporting the transaction.
These “badges of fraud” are enumerated in Bank of Montreal v. Vandine (1953) 1 D.L.R. 456;
Prodigy Graphics Group Inc. V. Fitz- Andrews, (2000) O.J. No. 1203 ( Ont. S. C. J.);
It is often difficult for a court to determine if a claim should be paid on an hourly rate for services performed( quantum meruit), or if the test of unjust enrichment has been met.
I recently provided a second opinion in a case involving a claim for unjust enrichment. The facts were reasonably simple. An elderly man had died leaving an estate of just less than $2 million to his nephew. For the last six years of his life, his closest neighbors had provided extensive services for him. They basically did everything for him including driving, cooking, shopping, and generally looking out for his best interests. They alleged they had expended in excess of 12,000 hours of care.
There had never been a promise of inheritance nor any prior discussion between the deceased and his neighbours about payment for their services. When the entire estate was left to a nephew however, their lawyer sued in unjust enrichment claiming a constructive trust or alternatively, damages based on quantum meruit.
Having reviewed the facts and case law, my opinion was that the neighbours were unlikely to succeed in their claim for a constructive trust against the estate assets. I expected instead that a court would try to compensate them on quantum meruit basis for their time and effort. In my view their time would be valued at $10-11 per hour . The case ultimately settled for $150,000.
My research lead me to the law of unjust enrichment. From the plaintiff’s perspective, I tried to establish a constructive trust. My conclusion was that the plaintiff’s claim for a constructive trust would likely fail. The plaintiff would instead likely succeed on a claim for quantum meruit. It appeared to me that the courts have established a threshold of sorts that must be met before the courts will award a claim for constructive trust. If the threshold is not met, then the courts are more likely to make an award for quantum meruit. In my opinion, the guidelines for meeting the threshold are not yet well defined by the courts.
My experience is that many lawyers plead unjust enrichment and claim the equitable remedies of constructive trust and in the alternative quantum meruit. There are however, very few reported cases dealing with quantum meruit. It occurred to me that a paper on this interesting area of the law might be helpful.
What is Quantum Meruit ?
Blacks Law Dictionary, Fifth Edition, defines quantum meruit as follows:
Quantum meruit means “as much as he deserves”. It is an expression that describes the extent of liability on a contract implied by law. It is an equitable doctrine, based on the concept that no one who benefits by the labor and materials of another should be unjustly enriched thereby. The law implies a promise to pay a reasonable amount for the labor and materials furnished, even absent a specific contract.
The doctrine of quantum meruit is one part of the law of restitution, more commonly known as the law of unjust enrichment. In the law of unjust enrichment there are two distinct, but related, remedies
– quantum meruit; and
– constructive trust.
It is frequently open to the plaintiff, on the same facts, to claim in both. Although both claims may be based upon unjust enrichment, both the basis for the awards and the remedies differ. Depending on which remedy the court grants, the results are very different.
Generally speaking when the Courts find unjust enrichment and impose a constructive trust, the awards are higher than when they award damages based on quantum meruit.
Constructive Trust
A constructive trust is always imposed by law. When the court makes a declaration of a constructive trust this, in effect, creates an enforceable interest in real or personal property. .
Quantum Meruit
A claim in quantum meruit may either be:
– based on the intent of the parties; or
– imposed by law (in the absence of proven intent)
Quantum meruit is a claim for the payment of money to put the plaintiff back in to the position he or she would otherwise have been in. In other words it is a monetary award that is restitutionary remedy. It does not create any enforceable interest in property.
Range of Claims in Quantum Meruit.
The doctrine of quantum meruit encompasses a wide range of claims.
The range of claims however can generally be divided into two categories:
– those where the claim is asserted as a remedy in aid of an enforceable contract,or;
– those where there is no enforceable contract or no contract at all.
In estate litigation these claims of quantum meruit frequently involve a plaintiff claiming restitution for services rendered to the deceased before death.
Enforceable Contracts
If the parties enter into a contract for services and services are rendered, the courts will impose an obligation on the person who has benefited to pay reasonable compensation even though no contract price had been agreed. Graves v. Okanagan Trust Company (1956) 20 W.W.R. (N.S.) 17 ( B.C.S.C.)
What is Reasonable Compensation?
A brief review of the case law reveals the courts may appear somewhat arbitrary in deciding what is “reasonable”. It is difficult to reconcile some of the cases. In some cases, the Courts have attempted to just “ballpark” the value of the everyday services performed services such as shopping, driving, cleaning and paying bills.
Let us look at some examples.
1. Mikita v Lick 1992 Carswell BC 2199 .
An action was brought to set aside a will and transfer . Both documents had been signed by an elderly gentleman shortly before his death. He had transferred his home to himself and his housekeeper in joint tenancy. He had executed a will disinheriting his children and leaving everything to the housekeeper.
When she was first hired, the agreement had been that the housekeeper to be paid for her services. This contract was later superseded by the transfer and the will.
The judge set aside both the will and the transfer of land based on his finding that the deceased had lacked mental capacity. The judge also found the housekeeper to be untruthful. Nevertheless he allowed her claim of quantum meruit and awarded the sum of $20,000 for about one year of nursing care.
In doing do, Justice Selbie stated inter alia:
Lick claims by way of counter-claim k) alternatively, compensation in equity “quantum meruit. I find justification for this claim. Putting all else aside there is no question that she looked after the deceased for a period of time especially after his release from hospital in July of 1989. It was a role someone would have had to undertake as he could no longer function by himself. The difficulty is in determining just how much time she spent with him. Her lack of credibility colours any such determination. Her evidence is really all that there is except for the sometime observations of various persons. The question of whether he paid her on a regular or irregular basis or whether she obtained monies on an informal basis is quite unanswerable on the evidence. She certainly lived in his home during the last months of his life receiving at least room and board for her services. It is my view that equity should recognize a claim by her for compensation. In that case Mikita argues that the $19,000 she received in December should be set off against any such right and that $19,000 and, presumably, the car, was in excess of any entitlement. I appreciate the argument but, taking everything into consideration, and recognizing the need to be arbitrary in setting any amount, I allow her claim for quantum meruit in the amount of $20,000.”
1. Emmerling v Eschment 1998 Carswell BC 1013
This case deals with the difficulty in assessing the merits of a claim for care provided in expectation of an inheritance. This case is also illustrates some factors considered by the court to determine which remedy to accord.
In this case the deceased died intestate. The plaintiff applied for a declaration that defendants held real and personal property of deceased in trust for him. In the alternative, the plaintiff claimed restitution on the basis of quantum meruit.
In his claim the plaintiff alleged that the deceased had told him and others that he intended to provide for the plaintiff after his death. The plaintiff asserted that not only cared for the deceased, he contributed to upkeep and maintenance of deceased’s home. He sought to establish a claim to an interest in the real property.
The evidence showed that plaintiff did minor repairs, routine maintenance, and lawn-mowing. Evidence of a home inspector however, was that home appeared neglected and poorly maintained.
The Court found that the contributions by the plaintiff fell far short of establishing that he maintained or enhanced the value of the property significantly. Thus they found these contributions did not create any equitable interest in the land.
There was no evidence that plaintiff made any contribution to the acquisition of the deceased’s other assets directly or indirectly. Therefore there was no basis for plaintiff’s claim through constructive or other trust .
The plaintiff however had lived in the deceased’s home for six years. He claimed they became friends. During the last two years of deceased’s life, the plaintiff took care of routine daily chores, helped with meal preparation and laundry, drove him to appointments, and helped administer medication
The plaintiff helped the deceased live out his final years in his own home without paid help that was otherwise required .The plaintiff was unemployed while living with deceased, but obtained employment paying $31,000 per year after deceased’s death.
The Court inferred, from the plaintiff’s subsequent employment, that he had the capacity to earn income. They further inferred that the plaintiff could have done so had he not instead cared for deceased for the last two years of his life.
The plaintiff was entitled to an award of $40,000 for unjust enrichment, on a “value received” basis, or quantum meruit.
In this decision the court followed the B.C.C.A. decision of Clarkson v McCrossen Estate (1995) 3 B.C.L.R. (3d) 80 which suggest the amount awarded is a matter of impression rather than calculation. This approach was also followed in Beattie v Badger Estate ( December 14, 1995) , Doc. Vancouver C933150 (B.C.S.C.), and in Mikita v. Lick supra.
3. Clarkson v McCrossen Estate (1995) 3 B.C.L.R. (3d) 80.
This case stands for the proposition that when services are rendered out of a sense of familial duty, that fact alone does not preclude a legitimate expectation of compensation.
Where the services are provided by a close family member, the Courts may start from the position that the services were provided out of a sense of love or obligation without any expectation of compensation. The Courts may then deny making any award.
Quantum Meruit in the Absence of an Enforceable Contract.
Where there is no contract or where it is unenforceable, the court may nevertheless impose an obligation to pay reasonable compensation. This obligation is designed to prevent the unjust enrichment of the recipient. Often the unenforceability arises from a failure to comply with the Statutes of Frauds, or an inability to subdivide real property.
Let us review some cases.
1. Deglman v. Guaranty Trust Co. of Canada S.C.C.(1954) 3 D.L.R. 785
Deglman is a classic case of an unjust enrichment leading to damages for a quantum meruit claim. The case stands for the proposition that if services are rendered pursuant to an unenforceable contract the court will impose an obligation to pay for those services.
In this case, the Supreme Court of Canada upheld an award of damages for quantum meruit to a nephew of the deceased. He had performed certain personal services for his deceased aunt. They had had an oral contract that his aunt would leave him her house in return for his care.
The Court held that even though the contract was not enforceable the law imposed an obligation to prevent an unjust enrichment. (The Statute of Frauds requires a contract to transfer land must be in writing to be enforceable) The Court awarded an amount valuing the services “on a purely business basis.”
Mr. Justice Cartwright stated at page 794:
” I agree with the conclusion of my brother Rand, that the respondent is entitled to recover the value of these services form the respondent administrator. This right appears to me to be based, not on the contract, but on an obligation imposed by law.”
2. West v Wilson 1998 CarswellBC 840
The plaintiff performed unpaid work on the defendant’s farm. In return the defendant promised to give the him part of the farm land. The parties executed an agreement of sale for that part of the land. Because the property was within the agricultural land reserve it could not be subdivided. The parties were therefore unable to register the agreement.
The plaintiff brought an action claiming, inter alia, quantum meruit for farm work that he performed.
The Court found that the defendant intended to make a gift of the parcel of land to the plaintiff but the gift was not perfected or completed. They also found the plaintiff’s labour had enriched the defendant and that the plaintiff had suffered a corresponding deprivation without juristic reason. Accordingly the plaintiff established his claim in quantum meruit.
The Court found the plaintiff was entitled to $40,000 as compensation for 4,000 hours of farmwork.
Constructive Trust or Quantum Meruit?
A claim for unjust enrichment , if successful, may be found to either warrant the imposition of a constructive trust or merely damages for quantum meruit (based on a reasonable fee for the services provided.)
As noted above, generally speaking, the awards of constructive trust are far higher than those of quantum meruit. Plaintiffs counsel should therefore plead unjust enrichment and claim the remedy of a constructive trust. Alternatively they should claim damages for quantum meruit. Defence will want to try to limit any successful claim to damages rather than a declaration of trust.
What Is A Constructive Trust ?
“A constructive trust comes into existence, regardless of any party’s intent, when the law imposes upon a party an obligation to holds specific property for another. The person obligated becomes by force of law a constructive trustee towards the person to whom he owes performance of the obligation.”
Law of Trusts on Canada Donovan Waters, page 378
Lord Denning in Hussey v Palmer (1972) 3 All E.R. 70 (CA) described a constructive trust as follows:
“by whatever name it is described, it is a trust imposed by law whenever justice and good conscience require it. It is a liberal process, founded upon large principles of equity, to be applied in cases where the defendant cannot conscientiously keep the property for himself alone, but ought to allow another to have the property or a share in it. It is an equitable remedy where the court can enable an aggrieved party to obtain restitution”.
The principle of “unjust enrichment” lies at the heart of the constructive trust. The principle of “unjust enrichment” has played a significant role in the development of this equitable remedy.
Lord Mansfield in Moses v Macferlan (1760) , 2 Burr. 1005, 97 E.R. 676, stated:
“the gist of this kind of action is the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money”.
One of the earliest situations that a constructive trust was imposed concerned the acquisition of a secret profit by persons who were employed to act for others. Since then, it has been applied to countless different fact patterns.
Though the doctrine of constructive trust is perhaps best known for its application in matrimonial and cohabitation property cases, it is by no means limited to those cases.
In Clarkson v McCrossen Estate (1995) 13 R.F.L. (4th) 237 (BCCA), Chief Justice McEachern stated
“I wish to mention that the law of unjust enrichment is in its early formative stages; it will continue to mature incrementally. The few cases that have been decided cannot be taken as the final word on any of these matters. They point the direction the law is taking, but not the many contours that must be traversed along the way.”
As seen in Emmerling and many other cases, the Courts will examine the extent of the contributions. They will decide whether or not the contributions maintained or enhanced the value of the property to the extent necessary to create an equitable interest in it. They will ask questions such as;
– Were there any contributions either directly or indirectly to acquire any of the assets?
– Would an award of quantum meruit be inadequate?
In effect, the Courts impose an undeclared “threshold” test to meet. Depending on the plaintiff’s contributions they may warrant either the imposition of a constructive trust or merely reasonable compensation for the services provided. Usually the Courts require that the unjust enrichment to be referable to a specific property before the plaintiff will be given an interest in the property under a constructive trust.
Common Law Marriages
Recent decisions illustrate the approach of the courts in deciding between constructive trust or quantum meruit in claims arising in common law marriages
1. Verbeke v. Hirst Estate, 2000 BCSC 1387.
In this case, the plaintiff had lived in common law relationship with the deceased for 43 years. The judge found she had given up a career to provide domestic services and health care to the deceased. The plaintiff also made substantial financial contributions to the household. The couple lived essentially on the plaintiff’s pension and food that she grew.
The estate’s major asset was property registered solely in the deceased’s name.
Elements of unjust enrichment were established and there was a direct link between the services rendered and the deceased’s property .The Court found that an award of money on the basis of quantum meruit would be inadequate for the contribution made.
In this case the court allowed the plaintiff’s claim for a declaration of a constructive trust. She was granted a half interest in the property and in the net cash in the estate.
In reaching its decision, the Court cited one of the leading authorities in Canada on unjust enrichment, stating as follows:
“The claim for an interest in the estate by way of constructive trust depends on whether the plaintiff has established the three elements of unjust enrichment set out in Becker v. Pettkus, [1980] 2 S.C.R. 834 (S.C.C.):
(a) an enrichment;
(b) a corresponding deprivation; and
(c) the absence of any juristic reason for the enrichment.
The contribution of domestic service and health care at the expense of a career and employment income can clearly form the basis of unjust enrichment and found a claim in constructive trust: Peter v. Beblow, [1993] 1 S.C.R. 980 (S.C.C.). As McLachlin J. (now C.J.C.) recognized, these services are of great value to the family economy.”
The defendant had argued that the plaintiff had been given a roof over her head, and was responsible for her own choices. The defendant said therefore that any award should be based on quantum meruit, and $40,000 would be adequate.
With the imposition of a constructive trust however, the plaintiff received more than twice that amount.
1. Soulos v Korkontzilas (1997) SCR 217
Here the Supreme Court of Canada ruled a constructive trust may be imposed “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 was in spite of an absence of enrichment and a corresponding deprivation.
2. Atkinson v. Carrell 47 B.C.L.R. ( 3d) 265
The parties to the litigation had lived common law for seven years. During that time the female defendant used funds from a divorce settlement to purchase certain assets as investments including a residence, mobile home park and mobile homes. The plaintiff only contributed $100 as a deposit on the house, and nothing on the other properties.
The male plaintiff brought an action seeking an interest in the defendant’s assets. Their total value was $530,000.
The Court examined what the plaintiff had contributed towards the properties and awarded him $25,000 for quantum meruit.
3. Baird v. Iaci 37 B.C.L.R. (3d) 1.
This case illustrates a situation where even though the plaintiff could not establish a constructive trust, the Courts made a significant award based on quantum meruit.
The plaintiff and the defendant entered into a sexual relationship in 1987. At that time the plaintiff had a dream of owning a farm. She needed money to finance her dream.
The defendant started paying the plaintiff’s rent and expenses. He bought a farm which the plaintiff managed in exchange for being allowed to live in the farmhouse rent-free. The farm increased in value during their relationship. The defendant stayed at the farm one or two nights a week, during which time the parties occupied the same bed.
The relationship subsequently deteriorated and the plaintiff later brought an action for the imposition of a constructive trust on both in the farm and on a portfolio of mortgages. In the alternative, she sought judgment on a quantum meruit basis.p>
The Court held that the plaintiff could not satisfy the requirements for proving the existence of a constructive trust in the farm or in the mortgage portfolio. The plaintiff had not contributed in any way to the defendant’s portfolio or to any other of the farm’s expenses.
Furthermore, the plaintiff benefited financially from her relationship with the defendant since he provided her with a free place to live and he paid her expenses. Since she had not provided any enrichment to the farm or to the portfolio, and did not suffer any deprivation, she could not claim that the defendant had been unjustly enriched so as to support her constructive trust claim.
Notwithstanding this finding, the court found that it was through the plaintiff’s diligence that the farm investment had been discovered. Further she had contributed $3,500 towards its purchase. Based on these factors they ruled the plaintiff was entitled to receive some damages from the net appreciation in value of the farm..
The Court held that she was entitled to damages in quantum meruit equal to one third of the farm’s value (after subtracting its original cost and renovation expenses).
Conclusion
As we have seen, the law of unjust enrichment creates a complicated relationship between the remedy of unjust enrichment and the constructive trust.
If I may summarize in the most important points for practitioners to remember
1. The Courts have in effect set up a threshold that must be met before they will make an award for constructive trust upon the assets in dispute. It is not very clear just what proof the courts will require in order to meet the threshold. If the threshold is not met then the courts will likely make an award for quantum meruit.
It is generally advisable for plaintiff’s counsel to plead unjust enrichment and a constructive trust, and alternatively damages for quantum meruit.
2. Defence counsel will usually argue that if there is to be an award of damages, they should be limited to a quantum meruit award.
3. Generally the courts will award a greater sum of money or interest in assets if the plaintiff is able to establish the basis a constructive trust.
4. If the plaintiff is unable to establish a constructive trust, then the Courts may well award damages on a quantum meruit basis. Damages will then be calculated on a comparatively low hourly rate to be paid for the services provided.
The British Columbia Fraudulent Conveyance Act is a statute designed to give a remedy to creditors frustrated in collecting their debts by a debtor who has disposed of his/her assets.
The Fraudulent Conveyance act permits a creditor to impugn or set aside a transfer of property, where that property has been transferred in an effort to defeat the legitimate claims of creditors.
Our law relating to fraudulent conveyances dates back to the English Middle Ages when England became a trading nation commercial laws were developed to resolve the trade disputes. Throughout history debtors have been tempted to convey their property to friends or family, hoping to avoid their creditors by putting their property out of the reach.
As early as 1571, the Statute of Elizabeth, the first Fraudulent Conveyance Act, was passed. Since that time our courts have developed a large body of case law, which largely supports the claims of “creditors and others” to set aside fraudulent conveyances.
Our law requires a debtor to honour his or her legal obligations first before transferring property to others (usually family or friends) thus attempting to put it out of reach of legal claimants.
In Freeman v. Pope (1870), L.R. 5 Ch. App 538 this principle is stated as follows: “persons must be just before they are generous, and that debts must be paid before gifts can be made”.
What is a Fraudulent Conveyance?
A fraudulent conveyance is a transfer of an interest in property, in circumstances where:
a) the transfer hinders or impairs the rights of a creditor or other claimant to satisfy a claim against the transferor (debtor) of the property; and
b) the transferor intends such a purpose in making the transfer
Burden Of Proof
In an action to set aside a fraudulent conveyance, the plaintiff (creditor) has the burden of proving that the transfer was done with the intention of defrauding “creditors or others”.
Intention is a state of mind and a question of fact which must be proven in court. However because the defendant’s intention not usually directly known, the caselaw permits a plaintiff creditor to rely on circumstantial evidence to raise an inference of fraud which the defendant debtor must then rebut.
The courts have identified a number of suspicious circumstances, known as the “badges of fraud” which may raise this inference of fraud. The more suspicious the circumstances, the stronger the inference of fraudulent intent.
It is not necessary to prove numerous badges of fraud, as a single badge may be sufficient to give rise of an intent to defraud, deceit or delay creditors in the absence of an explanation from the defendant. Re Fancy (1984) 46 O.R. (2d) 153
The courts will examine all of the circumstances surrounding the conveyance of the property to determine if there are any “badges of fraud.”
The Supreme Court of Canada in Koop v. Smith (1915) 51 S.C.R. 355 held that the burden of establishing the bona fides ( good faith) of the transaction in such a situation shifts from a plaintiff (creditor) to the defendant ( debtor), and that care is required in scrutinizing the testimony of the parties to the transaction.
In examining transfers made between near relations under suspicious circumstances, the Supreme Court went on to rule that the principle of res ipsa loquitor applies, i.e. the facts speak for themselves. Thus, the court ruled, in such a situation the defendant must establish the transfer was bona fides by presenting corroborative evidence, independent of the testimony of interested parties.
Badges of Fraud
Suspicious circumstances which our courts may characterize as “badges of fraud” include the following:
1) Secrecy surrounding the transaction
2) Cash payments were made
3) No change of possession occurred after the conveyance;
4) Transfer to non-arm’s-length person;
5) The transferor has few remaining assets;
6) The transfer was effected with unusual haste;
7) Grossly inadequate consideration was paid;
8) A benefit was retained by the transferor under the settlement;
9) The transfer was made in the face of potential litigation;
10) Lack of accurate documentation supporting the transaction.
These “badges of fraud” are enumerated in Bank of Montreal v. Vandine (1953) 1 D.L.R. 456; Prodigy Graphics Group Inc. V. Fitz- Andrews, (2000) O.J. No. 1203 ( Ont. S. C. J.); and Ferguson v. Lastewka et al ( 1946 ) O. R. 577
Legal Or Equitable Claim Necessary
Both the original Statute of Elizabeth and our modern Fraudulent Conveyance Act provide a statutory remedy to “creditors and others” and these words have been broadly interpreted.
Specifically in Hossay v. Newman 22 E. T. R. (2d) 150 (BCCA) our court adopted the reasoning of the Alberta Supreme Court in Dower V. Alberta Public Trustee (1962) 35 D. L.R. (2d) 29. The court found that the words “creditors and others” in the Statute of Elizabeth should be given a broad interpretation, but should only include such persons who have “legal or equitable” claims against the grantor or settler.
In the Hossay decision the plaintiff was an adult son of the deceased. He was effectively disinherited when shortly before his death, the father placed his major assets in joint tenancy with one of the defendants. The result was that the deceased’s assets passed to the defendant by operation of law and did not form part of the testator’s estate.
The plaintiff argued that the transfer of the deceased’s assets into joint tenancy was a fraudulent conveyance made to defeat his claim under the Wills Variation Act. Since a WVA claim can only be maintained against the deceased’s estate, the plaintiff sought to set aside the transfer so as to bring the assets back into the estate of his late father.
The court dismissed the plaintiff’s claim on the basis that he did not have any legal or equitable claim against his father during his lifetime. The son’s claim arose solely on death under the provisions of the Wills Variation Act, and as a result the son did not come within the meaning of the words “creditors or others” under the Fraudulent Conveyance Act.
Presumably it would be otherwise for a claim brought by a spouse. In contrast to a child of a deceased, a spouse likely does have a legal or equitable claim against the other spouse, during his or her lifetime. For example, a spouse might have a an equitable claim of unjust enrichment or constructive trust, or a legal claim under the provisions of the Divorce Act, or under provincial family law.
Creditors Need Not Exist At Time of Conveyance
In Canadian Imperial Bank of Commerce v. Boukalis ( 1987( 34 D.L.R. (4th) 481 at page 487 (BCCA) the court stated “A conveyance can be set aside even if there were no creditors when it was made.”
The transfer may be set aside if the defendants simply foresaw potential creditors who might be defeated by the conveyance. Newlands Sawmills Ltd. v. Bateman 31 B.C.R. 351.
This is especially so where a potential debtor embarks on a risky business venture knowing that there might likely be future creditors should the business fail.
Dishonest Intention Not Required
In order for the Fraudulent Conveyance Act to apply it is not necessary to prove any dishonest intention on the part of the defendant. What is required is simply proof of an intention to move the property out of reach of potential creditors,. Royal Bank of Canada v. Clarke 2009 BCSC 481.
In a judgment released February 2, 2010, Abakhan & Associates Inc. Braydon Investments Ltd 2009 BCCA 521 the Court of Appeal upheld the trial judgment. At trial, the judge had set aside a conveyance as fraudulent in spite of finding that the debtor had no dishonest intent and had acted on professional advice to effect legitimate business purposes. Certainly there were bona fide business reasons for the transfer however nevertheless, once the debtor admitted an ancillary purpose was to shield the assets from potential creditors, the trial judge found the conveyance to be fraudulent.
Similarly in Chan v. Stanwood 2002 BCCA 474, the court upheld a finding of fraudulent conveyance where the defendants, on the advice of professionals, transferred their exigible (easily collectible) assets into shares in holding companies that were not “effectively exigible”. This exchange of exigible assets for preferred shares delayed, hindered, or defaulted the creditors, and the defendants did so by design. That design or purpose constituted the fraudulent intent required by the Act.
Conclusion
There are centuries of jurisprudence relating to fraudulent conveyances. Historically our courts have always interpreted the statute liberally and in favour of creditors. Most recently our courts have ruled there need not be a dishonest intention proven. Even a transfer made with advice for legitimate ends as limiting personal liability, may be set aside when a transfer is also intended to help to frustrate the claims of creditors.
We can expect that more and more “estate planning” type arrangements may be challenged as fraudulent conveyances by disappointed spouses who would otherwise have a substantial Wills Variation Act claim.
Kirk (Guardian ad litem of) v Kirk estate 2012 BCSC 1346.
The infant plaintiffs, through their father, were the granddaughters of the deceased, and claimed general damages against their grandfather for his assaults upon them.
On 30 October 2009 grandfather wrote a letter to a niece. On page 3 he complained about the charges being made against him and wrote:
I personally think that they have been promised money from a civil suit against me if I’m found guilty, little do they know that my house money is not in the family anymore, it’s untouchable and I’d die first anyway.
Criminal charges were laid against him in 2009 after which time the grandfather sold his house and realized $310,000.
He committed suicide in July 2010, a day before he was to be sentenced.
All of the $310,000 had been dissipated.
The plaintiffs applied for inter alia tracing order of those funds, and a declaration that the transfer of same was a Fraudulent Conveyance.
After reviewing the materials, the court concluded that $185,000 of the fund fell within the ambit of the fraudulent conveyance legislation, but not gifts that he made to his sons totalling some $11,500, or amounts paid for legal fees and for his care.
The plaintiffs rely solely on the Fraudulent Conveyance Act, R.S.B.C. 1996, c. 163, and in particular, the recent judgments of the Court of Appeal in Abakhan & Associates Inc. v. Braydon Investments Ltd., 2009 BCCA 521, and the decision of Mr. Justice Johnston in G.M.S. v. W.W.R., 2010 BCSC 1741.
[30] In the course of the Chief Justice’s judgment in Abakhan, he wrote, “It is sufficient to fix the defendants with liability if they foresaw potential creditors who might be defeated by the conveyance.” With respect to the words in the Fraudulent Conveyance Act in s. 1 “by collusion, guile, malice or fraud”, he noted those words should be struck: see para. 72, as they are surplus to the fact that the case law demonstrates that one does not need to prove a dishonest intent or mala fides but simply an intent to avoid creditors
