Vancouver Estate Law: Constructive Trusts to Resolve Unfairness

In last week’s post, our Vancouver estate law team discussed McMurtry v. McMurtry, 2016 ONSC 2853, appeal dismissed, 2017 ONCA 296, an estate dispute concerning the ownership of shares in a family business. The claim in that case arose between a mother, Mildred McMurtry, and her son, John McMurtry, over shares in Mic Mac Realty (Ottawa) Ltd. (“MMR”), owned by Mildred’s husband Keith. During his lifetime, Keith gave six shares in MMR to each of his sons, John and Jim. Keith retained the remaining ten shares. Keith died in 1998. Under his will, Mildred was the residual beneficiary of Keith’s estate. The will made no mention of Keith’s ten shares (the “Disputed Shares”).

Estate law claim to determine ownership of shares

Mildred and her son John each claimed ownership of the Disputed Shares. Mildred claimed that as the residual beneficiary of her husband’s estate, the Disputed Shares were hers. John claimed that his father gifted the Disputed Shares to him before he died (i.e., via an inter vivos gift) or that his father had an intention to give the Disputed Shares to John that persisted until Keith’s death. Last week’s discussion focused on the law of gift in Vancouver estate law matters. John’s claim that his father had gifted or intended to gift the Disputed Shares to him during his lifetime was not established on the facts. The court held that at the date of Keith’s death in 1998, Keith remained the owner of the Disputed Shares, and pursuant to the terms of the will, on Keith’s death the shares fell into and remained part of the residue of the estate. Mildred became the beneficial owner of the shares as the residual beneficiary under the terms of the will.

Claim in constructive trust established

Although John’s claim based on the law of gift failed, his claim based on the law of constructive trust succeeded. It was declared that Mildred, by virtue of her status as the residual beneficiary of the Keith’s estate, was the owner of the Disputed Shares, but that she had in that capacity since January 1999 held and continued to hold the Disputed Shares in a constructive trust for John. A letter written by Mildred in January 1999, a number of months after the death of her husband, was central to that finding. The letter, signed by Mildred and created voluntarily and deliberately by her, reads in its entirety as follows:

I have searched for minute book, on a long shot that it might be here.  However I have been unable to locate it.

The last time I saw it, was in the mid 1980s, at a meeting in the trailer on Mac ST.  As far as contents go, your dad and I discussed his shares in Mic-Mac, and at that time the accountant was instructed to transfer his shares to you (John).  I know that this happened and took place at this time, however if we could find the minute book, it would make it a bit easier.  I attended meeting and witnessed that Keith instructed that this be done.

The court found that by writing this letter, Mildred confirmed that she was witness to: a) the decision of Keith to transfer the Disputed Shares to John; and b) steps taken to put that decision into effect. While the gift was not actually effected in Keith’s lifetime, the letter established that the status quo since January 1999 had been that both Mildred and John had conducted themselves on the basis of the mutual assumption that John owned the shares. There was no evidence that prior to the commencement of the estate law action – some 13 years after she wrote the letter – Mildred ever took any steps to inform John that she was claiming ownership of the shares as residual beneficiary under the will.

Imposition of a constructive trust to address unfairness

The imposition of a constructive trust in these circumstances is in keeping with the decision of the Supreme Court of Canada in Soulos v. Korkontzilas, [1997] 2 S.C.R. 217 (see our Vancouver estate lawyers’ analysis of that case here. At paragraph 17 of her decision for the majority in Soulos, and in referring to the history of constructive trusts, McLachlin J. said:

[The history] 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.

The passage quoted above serves to emphasize the diverse circumstances in which a constructive trust may be imposed.

Considering the equities in Vancouver estate law disputes

While McMurtry was decided in another province, the analysis from it applies with equal force in BC estate law disputes. The equities of the situation were that John had essentially devoted his working life to MMR. The court found that it was just and reasonable in the circumstances to impose a constructive trust and determine that Mildred, as the residual beneficiary of the estate, held the Disputed Shares in a constructive trust for the benefit of John. By her conduct, Mildred had permitted a situation to arise that would be unjust to disturb. The situation included the personal and financial investment, without remuneration specific to their investment, on the part of both John and his wife Brenda in MMR. It was undisputed that John and Brenda had, for three decades, including since the letter was written, devoted their working lives and, at times, personal financial resources to the operation and management of MMR. Mildred was aware by January 1999 of the work being done by John and Brenda for MMR and the court found that the letter was written at least partly in recognition of that work. The court held that it would be unjust and unreasonable to disturb the status quo more than 17 years after Mildred wrote the letter, and as a result, a constructive trust was imposed so that Mildred held the shares for the benefit of John.

Take home point on constructive trusts in BC estate law

Following the majority decision of the Supreme Court of Canada in Soulos v. Korkontzilas, a constructive trust may be imposed 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. In BC estate law actions, a constructive trust may be imposed where a gift of shares in a family business is not completed during one parent’s lifetime, but the evidence is clear that the parents intended to gift the shares to a child who had committed him or herself to the family business.