Constructive Trust as a Remedy for Unjust Enrichment

Remedies for Unjust Enrichment

The Supreme Court of Canada explains that “[r]emedies for unjust enrichment are restitutionary in nature; that is, the object of the remedy is to require the defendant to repay or reverse the unjustified enrichment”.¹  As such, a successful claim for unjust enrichment may attract either a proprietary remedy (normally a constructive trust) or a personal restitutionary award (a money remedy).

The first step in determining which type of remedy is appropriate is always to consider whether a monetary award will be appropriate to remedy the unjust enrichment.²  It is only where “… monetary damages are inadequate and where there is a link between the contribution that founds the action and the property in which the constructive trust is claimed” that the remedy of constructive trust arises.³ The concern between a personal remedy and a proprietary remedy reflects a concern that third parties are not prejudiced in some way (e.g. general creditors of the defendant).

Are Monetary Damages Sufficient?

In the vast majority of cases, a constructive trust (i.e., proprietary remedy) will not be appropriate⁴ and damages (i.e., a monetary award) will be sufficient.⁵

The case law establishes that monetary damages will be insufficient where there is a reason to grant the plaintiff the additional rights that flow from recognition of property rights, such as where it is appropriate that the plaintiff receive priority accorded to the holder of a right of property in a bankruptcy⁶ or where there is a contribution to the property sufficiently substantial and direct as to entitle the plaintiff to a portion of the profits realized upon the sale of the property.⁷

Quantifying Monetary Damages

If a monetary award is appropriate, the court must then determine the proper approach for calculating damages.  This is far from a straightforward exercise.⁸

In Kerr v. Baranow, the Supreme Court of Canada rejected the remedial dichotomy, which would restrict the calculation of monetary damages to an assessment on a fee-for-services basis.  The court emphasized the need for flexibility “… so as to allow the court to respond appropriately to the substance of the problem put before it.”⁹  The court held that “[i]n appropriate circumstances, monetary relief may be assessed on a value survived basis.”¹⁰

Based on Kerr v. Baranow, there are two generally accepted approaches to calculating monetary damages, including the following:

1. the fee-for-services approach; and
2. the value survived approach.

The case law indicates that the value surviving approach will be appropriate where the fee-for-services approach would not adequately respond to the underlying nature of the claim and where the claimant establishes a link between the contributions made and the value surviving.¹¹ This happens where the claimant’s contributions resulted in wealth creation and it would be unfair to deprive the claimant of the benefit of the wealth accumulation, which s/he helped create.

The concept of the joint family venture is demonstrative.¹²  In such cases, a simple fee-for-services approach fails to recognize the true value of the claimant’s contribution.  The remedy must be adjusted to appropriately address the claim.

The value surviving approach resolves a practical concern with unjust enrichment claims made where there has been “a mutual conferral of benefits” giving rise to what is known as the “duelling quantum meruits”.  “[I]t is enormously difficult for the parties and the court to ‘create, retroactively, a notional ledger to record and value every service rendered by each party to the other’”.¹³  Where damages are calculated on a value surviving approach, there is no need to go through the process of creating a notional ledger.

Proprietary Remedy

The court will only award a proprietary remedy where a monetary award is inappropriate or insufficient and the claimant can establish a link between the contribution and the property.

In Kerr v. Baranow, the court observed the following:

Where the plaintiff can demonstrate a link or causal connection between his or her contributions and the acquisition, preservation, maintenance or improvement of the disputed property, a share of the property proportionate to the unjust enrichment can be impressed with a constructive trust in his or her favour.¹⁴

However, to impose a constructive trust, the plaintiff must demonstrate a “sufficiently substantial and direct” link and a “causal connection” or a “nexus” between the plaintiff’s contributions and the property, which is the subject matter of the trust.¹⁵

Conclusion

One begins from the proposition that unjust enrichment is not parasitic on a legal or equitable wrong. Rather, the law reviews the circumstances surrounding a transfer of property, directly or indirectly, from one person to another. Where there is no “juristic reason” that would justify the transfer, the law of unjust enrichment provides the court with jurisdiction to reverse the enrichment. That “remedy” (or, perhaps better put, the response) may either be in the form of a personal remedy (a money award) or a proprietary remedy (principally a constructive trust). The robust nature of proprietary relief may be pleasing to a successful plaintiff, but risks prejudice to third parties and hence we prefer personal to proprietary relief. The availability of monetary and proprietary remedies and the different approaches to calculating monetary damages reflect this need for flexibility.  The various approaches provide the court with the necessary tools to craft a remedy that truly addresses the unjust enrichment and corresponding deprivation in a way that promotes fairness and equity.