Constructive Trusts

Vellenga v. Boersma, 2020 ONCA 537 (CanLII)

[32] In Soulos, at para. 45, the Supreme Court outlined four conditions that should generally be satisfied where a court imposes a constructive trust for wrongful conduct:

(1) The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, in relation to the activities giving rise to the assets in his hands;

(2) The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff;

(3) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties; and

(4) There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g., the interests of intervening creditors must be protected.

Roppovalente v. Danis, 2020 ONSC 5290 (CanLII)

[29] Given my finding that Ms. Danis did not breach her fiduciary duty by entering into the New Lease, it is not necessary for me to address in detail Mr. Roppovalente’s primary request for an order imposing a constructive trust on the New Lease for the benefit of BCO Group. I do, however, make the following observations.

[30] The remedy of constructive trust treats the person holding the property as a trustee of it for the wronged party’s benefit, even though there is no “true trust” created by intention. A constructive trust is “imposed by law not only to remedy unjust enrichment, but also 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”: Soulos v. Korkontzilas, 1997 CanLII 346 (SCC), [1997] 2 S.C.R. 217, at para. 17. In this manner, justice in the case before the court is served and the “relationships of trust and the institutions that depend on these relationships” are protected: Soulos, at para. 17.

[31] As the Supreme Court of Canada held in Soulos, at para. 45, the requirements to impose a constructive trust for wrongful conduct are the following:

(i) the defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, in relation to the activities giving rise to the assets in her hands;

(ii) the assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of her equitable obligation to the plaintiff;

(iii) the plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties; and

(iv) there must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g., the interests of intervening creditors must be protected.

[32] Mr. Roppovalente relies on Keech v. Sandford (1726), 25 E.R. 223 (Ch. D.) and Quong v. Pong (1925), 56 O.L.R. 616 (S.C. App. Div.), aff’d 1927 CanLII 2 (SCC), [1927] S.C.R. 271, where the courts imposed a constructive trust over a contract or legal right that was wrongfully diverted or assumed by a fiduciary.

[33] In this case, however, Ms. Danis did not wrongfully divert a contractual or legal right. The factual circumstances before me are entirely different than those in Bedard v. James (1986), 10 C.P.R. (3d) 339 (Ont. Dist. Ct.), aff’d 14 C.P.R. (3d) 288 (Ont. Div. Ct.), upon which Mr. Roppovalente relies. In awarding damages for loss of goodwill, the court in Bedard found that the plaintiff would have had no difficulty in renewing the lease and that the defendant knew it was the plaintiff’s intention to renew the lease. The same cannot be said in this case.

[34] In addition, even if I had found that Ms. Danis breached her fiduciary duty to BCO Group, Mr. Roppovalente has not shown why damages (as in Bedard) or an accounting for profits (as in Canaero) would not have been a sufficient remedy. Returning the parties to their prior position – effectively, a state of deadlock in relation to the operations of BCO Group – would serve no practical purpose. Mr. Roppovalente says that Ms. Danis’ company will reap the benefit of the investments he made to improve the premises. The extent to which each party contributed to the success of BCO Group, including through financial investments, will be a matter for the application judge to determine.