Soulos v. Korkontzilas

Soulos v. Korkontzilas
Collection
Supreme Court Judgments
Date
1997-05-22
Report
[1997] 2 SCR 217
Case number
24949
Judges
La Forest, Gérard V.; Sopinka, John; Gonthier, Charles Doherty; Cory, Peter deCarteret; McLachlin, Beverley; Iacobucci, Frank; Major, John C.
On appeal from
Ontario
Subjects
Property law
Trust
Notes
SCC Case Information: 24949
Decision Content
Soulos v. Korkontzilas, [1997] 2 S.C.R. 217
Fotios Korkontzilas, Panagiota Korkontzilas
and Olympia Town Real Estate Limited Appellants
v.
Nick Soulos Respondent
Indexed as: Soulos v. Korkontzilas
File No.: 24949.
1997: February 18; 1997: May 22.
Present: La Forest, Sopinka, Gonthier, Cory, McLachlin, Iacobucci and Major JJ.
on appeal from the court of appeal for ontario
Trusts and trustees ‑‑ Constructive trust ‑‑ Agency ‑‑ Fiduciary duties ‑‑ Real estate agent making offer to purchase property on behalf of client ‑‑ Vendor rejecting offer but advising agent of amount it would accept ‑‑ Agent buying property for himself instead of conveying information to client ‑‑ Market value of property decreasing from time of agent’s purchase ‑‑ Whether constructive trust over property may be imposed and agent required to transfer property to client even though client can show no loss.
Real property ‑‑ Remedies ‑‑ Constructive trust ‑‑ Agency ‑‑ Real estate agent making offer to purchase property on behalf of client ‑‑ Vendor rejecting offer but advising agent of amount it would accept ‑‑ Agent buying property for himself instead of conveying information to client ‑‑ Market value of property decreasing from time of agent’s purchase ‑‑ Whether constructive trust over property may be imposed and agent required to transfer property to client even though client can show no loss.
K, a real estate broker, entered into negotiations to purchase a commercial building on behalf of S, his client. The vendor rejected the offer made and tendered a counteroffer. K rejected the counteroffer but “signed it back”. The vendor advised K of the amount it would accept, but instead of conveying this information to S, K arranged for his wife to purchase to property, which was then transferred to K and his wife as joint tenants. S brought an action against K to have the property conveyed to him, alleging breach of fiduciary duty giving rise to a constructive trust. He asserted that the property held special value to him because its tenant was his banker, and being one’s banker’s landlord was a source of prestige in his community. He abandoned his claim for damages because the market value of the property had decreased from the time of the purchase by K. The trial judge found that K had breached a duty of loyalty to S, but held that a constructive trust was not an appropriate remedy because K had not been “enriched”. The Court of Appeal, in a majority decision, reversed the judgment and ordered that the property be conveyed to S subject to appropriate adjustments.
Held (Sopinka and Iacobucci JJ. dissenting): The appeal should be dismissed.
Per La Forest, Gonthier, Cory, McLachlin and Major JJ.: The constructive trust is an ancient and eclectic institution imposed by law not only to remedy unjust enrichment, but 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. While Canadian courts in recent decades have developed the constructive trust as a remedy for unjust enrichment, this should not be taken as expunging from Canadian law the constructive trust in other circumstances where its availability has long been recognized. Under the broad umbrella of good conscience, constructive trusts are recognized both for wrongful acts like fraud and breach of duty of loyalty, and to remedy unjust enrichment and corresponding deprivation. While cases often involve both a wrongful act and unjust enrichment, constructive trusts may be imposed on either ground.
The following conditions should generally be satisfied before a constructive trust based on wrongful conduct will be imposed: (1) the defendant must have been under an equitable obligation 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.
Here K’s breach of his duty of loyalty sufficed to engage the conscience of the court and support a finding of constructive trust. First, K was under an equitable obligation in relation to the property at issue. His failure to pass on to his client the information he obtained on his client’s behalf as to the price the vendor would accept on the property and his use of that information to purchase the property instead for himself constituted a breach of his equitable duty of loyalty. Second, the assets in K’s hands resulted from his agency activities in breach of his equitable obligation to S. Third, a constructive trust is required to remedy the deprivation S suffered because of his continuing desire to own the particular property in question. A constructive trust is also required in cases such as this to ensure that agents and others in positions of trust remain faithful to their duty of loyalty. Finally, there are no factors which would make imposition of a constructive trust unjust in this case.
Per Sopinka and Iacobucci JJ. (dissenting): The ordering of a constructive trust is a discretionary matter and, as such, is entitled to appellate deference. The trial judge’s decision not to order such a remedy should be overturned on appeal only if the discretion has been exercised on the basis of an erroneous principle. The trial judge committed no such error here. He considered the moral quality of K’s actions and there is thus no room for appellate intervention on this ground. He was of the opinion that where there is otherwise no justification for ordering a constructive trust or any other remedy, the morality of the act will not alone justify such an order, which is a correct statement of the law. The trial judge has a discretion to order a constructive trust, or not to order one, and this discretion should not be affected by the number of available remedies. In this case, S withdrew his claim for damages. While compensatory damages were unavailable since no pecuniary loss was suffered, S could have sought exemplary damages. His decision not to do so should not bind the trial judge’s discretion with respect to the order of a constructive trust. The trial judge also considered deterrence, but held that it alone could not justify a remedy in this case.
Even if appellate review were appropriate, the remedy of a constructive trust was not available on the facts of this case. Recent case law in this Court is very clear that a constructive trust may only be ordered where there has been an unjust enrichment, and there was no enrichment, and therefore no unjust enrichment, here. The unavailability of a constructive trust in the absence of unjust enrichment is consistent with the constructive trust’s remedial role and supported by specific consideration of the principles set out in Lac Minerals. Deterrence does not suggest that a constructive trust should be available even where there is no unjust enrichment. Despite considerations of deterrence, it is true throughout the private law that remedies are typically unavailable in the absence of a loss. Courts have not held it to be necessary where a tort duty or a contractual duty has been breached to order remedies even where no loss resulted. There is nothing which would justify treating breaches of fiduciary duties any differently in this regard. In any event, the unavailability of a constructive trust in cases where there is no unjust enrichment does not have any significant effect on deterrence. Exemplary damages are available if deterrence is deemed to be particularly important, and an unscrupulous fiduciary has to reckon with the possibility that if there were gains in value to the property, he or she would be compelled to pay damages or possibly give up the property.
Cases Cited
By McLachlin J.
Referred to: Pettkus v. Becker, [1980] 2 S.C.R. 834; White v. Central Trust Co. (1984), 17 E.T.R. 78; Carl Zeiss Stiftung v. Herbert Smith & Co. (No. 2), [1969] 2 Ch. 276; Beatty v. Guggenheim Exploration Co., 122 N.E. 378 (1919); Neale v. Willis (1968), 19 P. & C.R. 836; Binions v. Evans, [1972] Ch. 359; Hussey v. Palmer, [1972] 1 W.L.R. 1286; Neste Oy v. Lloyd’s Bank Plc, [1983] 2 Lloyd’s Rep. 658; Elders Pastoral Ltd. v. Bank of New Zealand, [1989] 2 N.Z.L.R. 180; Mogal Corp. v. Australasia Investment Co. (In Liquidation) (1990), 3 N.Z.B.L.C. 101, 783; Re Goldcorp Exchange Ltd. (In Receivership), [1994] 2 All E.R. 806; Hodgkinson v. Simms, [1994] 3 S.C.R. 377; Meinhard v. Salmon, 164 N.E. 545 (1928); Ontario Wheat Producers’ Marketing Board v. Royal Bank of Canada (1984), 9 D.L.R. (4th) 729; MacMillan Bloedel Ltd. v. Binstead (1983), 14 E.T.R. 269.
By Sopinka J. (dissenting)
Donkin v. Bugoy, [1985] 2 S.C.R. 85; Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574; Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534; Hodgkinson v. Simms, [1994] 3 S.C.R. 377; Brissette Estate v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87; Pettkus v. Becker, [1980] 2 S.C.R. 834; Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426; Ontario Wheat Producers’ Marketing Board v. Royal Bank of Canada (1984), 9 D.L.R. (4th) 729; MacMillan Bloedel Ltd. v. Binstead (1983), 14 E.T.R. 269; Reading v. The King, [1948] 2 All E.R. 27, aff’d [1949] 2 All E.R. 68, aff’d [1951] 1 All E.R. 617; Canadian Aero Service Ltd. v. O’Malley, [1974] S.C.R. 592; Phipps v. Boardman, [1965] 1 All E.R. 849, aff’d [1966] 3 All E.R. 721; Lee v. Chow (1990), 12 R.P.R. (2d) 217.
Authors Cited
Birks, Peter. An Introduction to the Law of Restitution. Oxford: Clarendon Press, 1985.
Dewar, John L. “The Development of the Remedial Constructive Trust” (1982‑84), 6 Est. & Tr. Q. 312.
Dixon, John. “The Remedial Constructive Trust Based on Unconscionability in the New Zealand Commercial Environment” (1992-95), 7 Auck. U. L. Rev. 147.
Goff of Chieveley, Robert Goff, and Gareth Jones. The Law of Restitution, 3rd ed. London: Sweet & Maxwell, 1986.
Goode, Roy. “Property and Unjust Enrichment”. In Andrew Burrows, ed., Essays on the Law of Restitution. Oxford: Clarendon Press, 1991.
Litman, M. M. “The Emergence of Unjust Enrichment as a Cause of Action and the Remedy of Constructive Trust” (1988), 26 Alta. L. Rev. 407.
McClean, A. J. “Constructive and Resulting Trusts ‑‑ Unjust Enrichment in a Common Law Relationship ‑‑ Pettkus v. Becker (1982), 16 U.B.C. L. Rev. 155.
Paciocco, David M. “The Remedial Constructive Trust: A Principled Basis for Priorities over Creditors” (1989), 68 Can. Bar Rev. 315.
Scott, Austin Wakeman. The Law of Trusts, vol. V, 3rd ed. Boston: Little, Brown, 1967.
Sealy, L. S. “Fiduciary Relationships”, [1962] Camb. L.J. 69.
Waters, D. W. M. The Constructive Trust: The Case for a New Approach in English Law. London: University of London, Athlone Press, 1964.
APPEAL from a judgment of the Ontario Court of Appeal (1995), 25 O.R. (3d) 257, 126 D.L.R. (4th) 637, 84 O.A.C. 390, 47 R.P.R. (2d) 221, reversing a decision of the Ontario Court (General Division) (1991), 4 O.R. (3d) 51, 19 R.P.R. (2d) 205, dismissing the respondent’s action against the appellants for conveyance of a property. Appeal dismissed, Sopinka and Iacobucci JJ. dissenting.
Thomas G. Heintzman, Q.C., and Darryl A. Cruz, for the appellants.
David T. Stockwood, Q.C., and Susan E. Caskey, for the respondent.
The judgment of La Forest, Gonthier, Cory, McLachlin and Major JJ. was delivered by
McLachlin J. --
I
1 This appeal requires this Court to determine whether a real estate agent who buys for himself property for which he has been negotiating on behalf of a client may be required to return the property to his client despite the fact that the client can show no loss. This raises the legal issue of whether a constructive trust over property may be imposed in the absence of enrichment of the defendant and corresponding deprivation of the plaintiff. In my view, this question should be answered in the affirmative.
II
2 The appellant Mr. Korkontzilas is a real estate broker. The respondent, Mr. Soulos, was his client. In 1984, Mr. Korkontzilas found a commercial building which he thought might interest Mr. Soulos. Mr. Soulos was interested in purchasing the building. Mr. Korkontzilas entered into negotiations on behalf of Mr. Soulos. He offered $250,000. The vendor, Dominion Life, rejected the offer and tendered a counter-offer of $275,000. Mr. Soulos rejected the counter-offer but “signed it back” at $260,000 or $265,000. Dominion Life advised Mr. Korkontzilas that it would accept $265,000. Instead of conveying this information to Mr. Soulos as he should have, Mr. Korkontzilas arranged for his wife, Panagiota Goutsoulas, to purchase the property using the name Panagiot Goutsoulas. Panagiot Goutsoulas then transferred the property to Panagiota and Fotios Korkontzilas as joint tenants. Mr. Soulos asked what had happened to the property. Mr. Korkontzilas told him to “forget about it”; the vendor no longer wanted to sell it and he would find him a better property. Mr. Soulos asked Mr. Korkontzilas whether he had had anything to do with the vendor’s change of heart. Mr. Korkontzilas said he had not.
3 In 1987 Mr. Soulos learned that Mr. Korkontzilas had purchased the property for himself. He brought an action against Mr. Korkontzilas to have the property conveyed to him, alleging breach of fiduciary duty giving rise to a constructive trust. He asserted that the property held special value to him because its tenant was his banker, and being one’s banker’s landlord was a source of prestige in the Greek community of which he was a member. However, Mr. Soulos abandoned his claim for damages because the market value of the property had, in fact, decreased from the time of the Korkontzilas purchase.
4 The trial judge found that Mr. Korkontzilas had breached a duty of loyalty to Mr. Soulos, but held that a constructive trust was not an appropriate remedy because Mr. Korkontzilas had purchased the property at market value and hence had not been “enriched”: (1991), 4 O.R. (3d) 51, 19 R.P.R. (2d) 205 (hereinafter cited to O.R.). The decision was reversed on appeal, Labrosse J.A. dissenting: (1995), 25 O.R. (3d) 257, 126 D.L.R. (4th) 637, 84 O.A.C. 390, 47 R.P.R. (2d) 221 (hereinafter cited to O.R.).
5 For the reasons that follow, I would dismiss the appeal. In my view, the doctrine of constructive trust applies and requires that Mr. Korkontzilas convey the property he wrongly acquired to Mr. Soulos.
III
6 The first question is what duties Mr. Korkontzilas owed to Mr. Soulos in relation to the property. This question returns us to the findings of the trial judge. The trial judge rejected the submission of Mr. Soulos that an agreement existed requiring Mr. Korkontzilas to present all properties in the Danforth area to him exclusively before other purchasers. He found, however, that Mr. Korkontzilas became the agent for Mr. Soulos when he prepared the offer which Mr. Soulos signed with respect to the property at issue. He further found that this agency relationship extended to reporting the vendor’s response to Mr. Soulos. This relationship of agency was not terminated when the vendor made its counter-offer. The trial judge therefore concluded that Mr. Korkontzilas was acting as Mr. Soulos’ agent at all material times.
7 The trial judge went on to state that the relationship of agent and principal is fiduciary in nature. He concluded that as agent to Mr. Soulos, Mr. Korkontzilas owed Mr. Soulos a “duty of loyalty”. He found that Mr. Korkontzilas breached this duty of loyalty when he failed to refer the vendor’s counter-offer to Mr. Soulos.
8 The Court of Appeal did not take issue with these conclusions. The majority did, however, differ from the trial judge on what consequences flowed from Mr. Korkontzilas’ breach of the duty of loyalty.
IV
9 This brings us to the main issue on this appeal: what remedy, if any, does the law afford Mr. Soulos for Mr. Korkontzilas’ breach of the duty of loyalty in acquiring the property in question for himself rather than passing the vendor’s statement of the price it would accept on to his principal, Mr. Soulos?
10 At trial Mr. Soulos’ only claim was that the property be transferred to him for the price paid by Mr. Korkontzilas, subject to adjustments for changes in value and losses incurred on the property since purchase. He abandoned his claim for damages at an early stage of the proceedings. This is not surprising, since Mr. Korkontzilas had paid market value for the property and had, in fact, lost money on it during the period he had held it. Still, Mr. Soulos maintained his desire to own the property.
11 Mr. Soulos argued that the property should be returned to him under the equitable doctrine of constructive trust. The trial judge rejected this claim, on the ground that constructive trust arises only where the defendant has been unjustly enriched by his wrongful act. The fact that damages offered Mr. Soulos no compensation was of no moment: “It would be anomalous to declare a constructive trust, in effect, because a remedy in damages is unsatisfactory, the plaintiff having suffered none” (p. 69). Furthermore, “it seems simply disproportionate and inappropriate to utilize the drastic remedy of a constructive trust where the plaintiff has suffered no damage” (p. 69). The trial judge added that nominal damages were inappropriate, damages having been waived, and that Mr. Soulos had mitigated his loss by buying other properties.
12 The majority of the Court of Appeal took a different view. Carthy J.A. held that the award of an equitable remedy is discretionary and dependent on all the facts before the court. In his view, however, the trial judge had exercised his discretion on a wrong principle. Carthy J.A. asserted that the moral quality of the defendant’s act may dictate the court’s intervention. Most real estate transactions involve one person acting gratuitously for the purchaser, while seeking commission from the vendor. The fiduciary duties of the agent would be meaningless if the agent could simply acquire the property at market value, and then deny that he or she is a constructive trustee because no damages are suffered. In such circumstances, equity will “intervene with a proprietary remedy to sustain the integrity of the laws which it supervises” (p. 261). Carthy J.A. conceded that Mr. Soulos’ reason for desiring the property may seem “whimsical”. But viewed against the broad context of real estate transactions, he found that the remedy of constructive trust in these circumstances serves a “salutary purpose”. It enables the court to ensure that immoral conduct is not repeated, undermining the bond of trust that enables the industry to function. The majority accordingly ordered conveyance of the property subject to appropriate adjustments.
13 The difference between the trial judge and the majority in the Court of Appeal may be summarized as follows. The trial judge took the view that in the absence of established loss, Mr. Soulos had no action. To grant the remedy of constructive trust in the absence of loss would be “simply disproportionate and inappropriate”, in his view. The majority in the Court of Appeal, by contrast, took a broader view of when a constructive trust could apply. It held that a constructive trust requiring reconveyance of the property could arise in the absence of an established loss in order to condemn the agent’s improper act and maintain the bond of trust underlying the real estate industry and hence the “integrity of the laws” which a court of equity supervises.
14 The appeal thus presents two different views of the function and ambit of the constructive trust. One view sees the constructive trust exclusively as a remedy for clearly established loss. On this view, a constructive trust can arise only where there has been “enrichment” of the defendant and corresponding “deprivation” of the plaintiff. The other view, while not denying that the constructive trust may appropriately apply to prevent unjust enrichment, does not confine it to that role. On this view, the constructive trust may apply absent an established loss to condemn a wrongful act and maintain the integrity of the relationships of trust which underlie many of our industries and institutions.
15 It is my view that the second, broader approach to constructive trust should prevail. This approach best accords with the history of the doctrine of constructive trust, the theory underlying the constructive trust, and the purposes which the constructive trust serves in our legal system.
V
16 The appellants argue that this Court has adopted a view of constructive trust based exclusively on unjust enrichment in cases such as Pettkus v. Becker, [1980] 2 S.C.R. 834. Therefore, they argue, a constructive trust cannot be imposed in cases like this where the plaintiff can demonstrate no deprivation and corresponding enrichment of the defendant.
17 The history of the law of constructive trust does not support this view. Rather, it suggests that the constructive trust is an ancient and eclectic institution imposed by law not only to remedy unjust enrichment, but 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 served the end, not only of doing justice in the case before the court, but of protecting relationships of trust and the institutions that depend on these relationships. These goals were accomplished by treating the person holding the property as a trustee of it for the wronged person’s benefit, even though there was no true trust created by intention. In England, the trust thus created was thought of as a real or “institutional” trust. In the United States and recently in Canada, jurisprudence speaks of the availability of the constructive trust as a remedy; hence the remedial constructive trust.
18 While specific situations attracting a constructive trust have been identified, the older English jurisprudence offers no satisfactory limiting or unifying conceptual theory for the constructive trust. As D. W. M. Waters, The Constructive Trust (1964), at p. 39, puts it, the constructive trust “was never any more than a convenient and available language medium through which . . . the obligations of parties might be expressed or determined”. The constructive trust was used in English law “to link together a number of disparate situations . . . on the basis that the obligations imposed by law in these situations might in some way be likened to the obligations which were imposed upon an express trustee”: J. L. Dewar, “The Development of the Remedial Constructive Trust” (1982-84), 6 Est. & Tr. Q. 312, at p. 317, citing Waters, supra.
19 The situations in which a constructive trust was recognized in England include constructive trusts arising on breach of a fiduciary relationship, as well as trusts imposed to prevent the absence of writing from depriving a person of proprietary rights, to prevent a purchaser with notice from fraudulently retaining trust properties, and to enforce secret trusts and mutual wills. See Dewar, supra, at p. 334. The fiduciary relationship underlies much of the English law of constructive trust. As Waters, supra, at p. 33, writes: “the fiduciary relationship is clearly wed to the constructive trust over the whole, or little short of the whole, of the trust’s operation”. At the same time, not all breaches of fiduciary relationships give rise to a constructive trust. As L. S. Sealy, “Fiduciary Relationships”, [1962] Camb. L.J. 69, at p. 73, states:
The word “fiduciary,” we find, is not definitive of a single class of relationships to which a fixed set of rules and principles apply. Each equitable remedy is available only in a limited number of fiduciary situations; and the mere statement that John is in a fiduciary relationship towards me means no more than that in some respects his position is trustee-like; it does not warrant the inference that any particular fiduciary principle or remedy can be applied. [Emphasis in original.]
Nor does the absence of a classic fiduciary relationship necessarily preclude a finding of a constructive trust; the wrongful nature of an act may be sufficient to constitute breach of a trust-like duty: see Dewar, supra, at pp. 322-23.
20 Canadian courts have never abandoned the principles of constructive trust developed in England. They have, however, modified them. Most notably, Canadian courts in recent decades have developed the constructive trust as a remedy for unjust enrichment. It is now established that a constructive trust may be imposed in the absence of wrongful conduct like breach of fiduciary duty, where three elements are present: (1) the enrichment of the defendant; (2) the corresponding deprivation of the plaintiff; and (3) the absence of a juristic reason for the enrichment: Pettkus v. Becker, supra.
21 This Court’s assertion that a remedial constructive trust lies to prevent unjust enrichment in cases such as Pettkus v. Becker should not be taken as expunging from Canadian law the constructive trust in other circumstances where its availability has long been recognized. The language used makes no such claim. A. J. McClean, “Constructive and Resulting Trusts -- Unjust Enrichment in a Common Law Relationship -- Pettkus v. Becker” (1982), 16 U.B.C. L. Rev. 155, at p. 170, describes the ratio of Pettkus v. Becker as “a modest enough proposition”. He goes on: “It would be wrong . . . to read it as one would read the language of a statute and limit further development of the law”.
22 Other scholars agree that the constructive trust as a remedy for unjust enrichment does not negate a finding of a constructive trust in other situations. D. M. Paciocco, “The Remedial Constructive Trust: A Principled Basis for Priorities over Creditors” (1989), 68 Can. Bar Rev. 315, at p. 318, states: “the constructive trust that is used to remedy unjust enrichment must be distinguished from the other types of constructive trusts known to Canadian law prior to 1980". Paciocco asserts that unjust enrichment is not a necessary condition of a constructive trust (at p. 320):
... in the largest traditional category, the fiduciary constructive trust, there need be no deprivation experienced by the particular plaintiff. The constructive trust is imposed to raise the morality of the marketplace generally, with the beneficiaries of some of these trusts receiving what can only be described as a windfall.
23 Dewar, supra, holds a similar view (at p. 332):
While it is unlikely that Canadian courts will abandon the learning and the classifications which have grown up in connection with the English constructive trust, it is submitted that the adoption of the American style constructive trust by the Supreme Court of Canada in Pettkus v. Becker will profoundly influence the future development of Canadian trust law.
Dewar, supra, at pp. 332-33, goes on to state: “In English and Canadian law there is no general agreement as to precisely which situations give rise to a constructive trust, though there are certain general categories of cases in which it is agreed that a constructive trust does arise”. One of these is to correct fraudulent or disloyal conduct.
24 M. M. Litman, “The Emergence of Unjust Enrichment as a Cause of Action and the Remedy of Constructive Trust” (1988), 26 Alta. L. Rev. 407, at p. 414, sees unjust enrichment as a useful tool in rationalizing the traditional categories of constructive trust. Nevertheless he opines that it would be a “significant error” to simply ignore the traditional principles of constructive trust. He cites a number of Canadian cases subsequent to Pettkus v. Becker, supra, which impose constructive trusts for wrongful acquisition of property, even in the absence of unjust enrichment and correlative deprivation, and concludes that the constructive trust “cannot always be explained by the unjust enrichment model of constructive trust” (p. 416). In sum, the old English law remains part of contemporary Canadian law and guides its development. As La Forest J.A. (as he then was) states in White v. Central Trust Co. (1984), 17 E.T.R. 78 (N.B.C.A.), at p. 90, cited by Litman, supra, the courts “will not venture far onto an uncharted sea when they can administer justice from a safe berth”.
25 I conclude that the law of constructive trust in the common law provinces of Canada embraces the situations in which English courts of equity traditionally found a constructive trust as well as the situations of unjust enrichment recognized in recent Canadian jurisprudence.
VI
26 Various principles have been proposed to unify the situations in which the English law found constructive trust. R. Goff and G. Jones, The Law of Restitution (3rd ed. 1986), at p. 61, suggest that unjust enrichment is such a theme. However, unless “enrichment” is interpreted very broadly to extend beyond pecuniary claims, it does not explain all situations in which the constructive trust has been applied. As McClean, supra, at p. 168, states: “however satisfactory [the unjust enrichment theory] may be for other aspects of the law of restitution, it may not be wide enough to cover all types of constructive trust”. McClean goes on to note the situation raised by this appeal: “In some cases, where such a trust is imposed the trustee may not have obtained any benefit at all; this could be the case, for example, when a person is held to be a trustee de son tort. A plaintiff may not always have suffered a loss.” McClean concludes (at pp. 168-69): “Unjust enrichment may not, therefore, satisfactorily explain all types of restitutionary claims”.
27 McClean, among others, regards the most satisfactory underpinning for unjust enrichment to be the concept of “good conscience” which lies at “the very foundation of equitable jurisdiction” (p. 169):
“Safe conscience” and “natural justice and equity” were two of the criteria referred to by Lord Mansfield in Moses v. MacFerlan (1760), 2 Burr. 1005, 97 E.R. 676 (K.B.) in dealing with an action for money had and received, the prototype of a common law restitutionary claim. “Good conscience” has a sound basis in equity, some basis in common law, and is wide enough to encompass constructive trusts where the defendant has not obtained a benefit or where the plaintiff has not suffered a loss. It is, therefore, as good as, or perhaps a better, foundation for the law of restitution than is unjust enrichment.
28 Other scholars agree with McClean that good conscience may provide a useful way of unifying the different forms of constructive trust. Litman, supra, adverts to the “natural justice and equity” or “good conscience” trust “which operates as a remedy for wrongs which are broader in concept than unjust enrichment” and goes on to state that this may be viewed as the underpinning of the various institutional trusts as well as the unjust enrichment restitutionary constructive trust (at pp. 415-16).
29 Good conscience as the unifying concept underlying constructive trust has attracted the support of many jurists. Edmund Davies L.J. suggested that the concept of a “want of probity” in the person upon whom the constructive trust is imposed provides “a useful touchstone in considering circumstances said to give rise to constructive trusts”: Carl Zeiss Stiftung v. Herbert Smith & Co. (No. 2), [1969] 2 Ch. 276 (C.A.), at p. 301. Cardozo J. similarly endorsed the unifying theme of good conscience in Beatty v. Guggenheim Exploration Co., 122 N.E. 378 (1919), at p. 380:
A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee. [Emphasis added.]
30 Lord Denning M.R. expressed similar views in a series of cases applying the constructive trust as a remedy for wrong-doing: see Neale v. Willis (1968), 19 P. & C.R. 836; Binions v. Evans, [1972] Ch. 359; Hussey v. Palmer, [1972] 1 W.L.R. 1286. In Binions, referring to the statement by Cardozo J., supra, Denning M.R. stated that the court would impose a constructive trust “for the simple reason that it would be utterly inequitable for the plaintiffs to turn the defendant out contrary to the stipulation subject to which they took the premises” (p. 368). In Hussey, he said the following of the constructive trust (at pp. 1289-90): “By whatever name it is described, it is a trust imposed by law whenever justice and good conscience require it”.
31 Many English scholars have questioned Lord Denning’s expansive statements on constructive trust. Nevertheless, he is not alone: Bingham J. similarly referred to good conscience as the basis for equitable intervention in Neste Oy v. Lloyd’s Bank Plc, [1983] 2 Lloyd’s Rep. 658.
32 The New Zealand Court of Appeal also appears to have accepted good conscience as the basis for imposing a constructive trust in Elders Pastoral Ltd. v. Bank of New Zealand, [1989] 2 N.Z.L.R. 180. Cooke P., at pp. 185-86, cited the following passage from Bingham J.’s reasons in Neste Oy, supra, at p. 666:
Given the situation of [the defendants] when the last payment was received, any reasonable and honest directors of that company (or the actual directors had they known of it) would, I feel sure, have arranged for the repayment of that sum to the plaintiffs without hesitation or delay. It would have seemed little short of sharp practice for [the defendants] to take any benefit from the payment, and it would have seemed contrary to any ordinary notion of fairness that the general body of creditors should profit from the accident of a payment made at a time when there was bound to be a total failure of consideration. Of course it is true that insolvency always causes loss and perfect fairness is unattainable. The bank, and other creditors, have their legitimate claims. It nonetheless seems to me that at the time of its receipt [the defendants] could not in good conscience retain this payment and that accordingly a constructive trust is to be inferred. [Emphasis added.]
Cooke P. concluded simply (at p. 186): “I do not think that in conscience the stock agents can retain this money.” Elders has been taken to stand for the proposition that even in the absence of a fiduciary relationship or unjust enrichment, conduct contrary to good conscience may give rise to a remedial constructive trust: see Mogal Corp. v. Australasia Investment Co. (In Liquidation) (1990), 3 N.Z.B.L.C. 101, 783; J. Dixon, “The Remedial Constructive Trust Based on Unconscionability in the New Zealand Commercial Environment” (1992-95), 7 Auck. U. L. Rev. 147, at pp. 157-58. Although the Judicial Committee of the Privy Council rejected the creation of a constructive trust on grounds of good conscience in Re Goldcorp Exchange Ltd. (In Receivership), [1994] 2 All E.R. 806, the fact remains that good conscience is a theme underlying constructive trust from its earliest times.
33 Good conscience addresses not only fairness between the parties before the court, but the larger public concern of the courts to maintain the integrity of institutions like fiduciary relationships which the courts of equity supervised. As La Forest J. states in Hodgkinson v. Simms, [1994] 3 S.C.R. 377, at p. 453:
The law of fiduciary duties has always contained within it an element of deterrence. This can be seen as early as Keech in the passage cited supra; see also Canadian Aero, supra, at pp. 607 and 610; Canson, supra, at p. 547, per McLachlin J. In this way the law is able to monitor a given relationship society views as socially useful while avoiding the necessity of formal regulation that may tend to hamper its social utility.
The constructive trust imposed for breach of fiduciary relationship thus serves not only to do the justice between the parties that good conscience requires, but to hold fiduciaries and people in positions of trust to the high standards of trust and probity that commercial and other social institutions require if they are to function effectively.
34 It thus emerges that a constructive trust may be imposed where good conscience so requires. The inquiry into good conscience is informed by the situations where constructive trusts have been recognized in the past. It is also informed by the dual reasons for which constructive trusts have traditionally been imposed: to do justice between the parties and to maintain the integrity of institutions dependent on trust-like relationships. Finally, it is informed by the absence of an indication that a constructive trust would have an unfair or unjust effect on the defendant or third parties, matters which equity has always taken into account. Equitable remedies are flexible; their award is based on what is just in all the circumstances of the case.
35 Good conscience as a common concept unifying the various instances in which a constructive trust may be found has the disadvantage of being very general. But any concept capable of embracing the diverse circumstances in which a constructive trust may be imposed must, of necessity, be general. Particularity is found in the situations in which judges in the past have found constructive trusts. A judge faced with a claim for a constructive trust will have regard not merely to what might seem “fair” in a general sense, but to other situations where courts have found a constructive trust. The goal is but a reasoned, incremental development of the law on a case-by-case basis.
36 The situations which the judge may consider in deciding whether good conscience requires imposition of a constructive trust may be seen as falling into two general categories. The first category concerns property obtained by a wrongful act of the defendant, notably breach of fiduciary obligation or breach of duty of loyalty. The traditional English institutional trusts largely fall under but may not exhaust (at least in Canada) this category. The second category concerns situations where the defendant has not acted wrongfully in obtaining the property, but where he would be unjustly enriched to the plaintiff’s detriment by being permitted to keep the property for himself. The two categories are not mutually exclusive. Often wrongful acquisition of property will be associated with unjust enrichment, and vice versa. However, either situation alone may be sufficient to justify imposition of a constructive trust.
37 In England the law has yet to formally recognize the remedial constructive trust for unjust enrichment, although many of Lord Denning’s pronouncements pointed in this direction. The courts do, however, find constructive trusts in circumstances similar to those at bar. Equity traditionally recognized the appropriateness of a constructive trust for breach of duty of loyalty simpliciter. The English law is summarized by Goff and Jones, The Law of Restitution, supra, at p. 643:
A fiduciary may abuse his position of trust by diverting a contract, purchase or other opportunity from his beneficiary to him