Division of Property in Common Law Relationships

On August 27 of this year, the Supreme Court of Canada granted leaved to appeal in Kerr v Baranow, 2009 BCCA 111, a family law case concerning the application of the equitable doctrine of resulting trust. In this case, the parties commenced their common-law relationship in 1981, when Ms. Kerr was in a financial crisis due to the breakdown of her previous marriage. Among the many debts outstanding was the mortgage on her home. Mr. Baranow paid off the mortgage on the home to protect it from foreclosure; Kerr then transferred title to the home to Baranow, and the parties moved into it. Baranow ultimately sold this home and the parties moved into his home, which he had been separately maintaining and would also go on to rebuild. In the latter part of the relationship, Kerr suffered a stroke and a resulting personality change, and had to be placed in an extended care facility. The couple terminated their relationship in 2006. Throughout their whole 25 years together, they kept their finances separate: each maintained his or her own bank accounts and personal vehicles, paid his or her own expenses, and acquired assets in his or her own name. To those around her, for example, Kerr made it clear that “what was hers was hers and what was [Baranow]’s was [Baranow]’s.”

On trial, the judge noted the parties were not “spouses,” and as such were not in a relationship to which the presumption of advancement, or gift, applies.  Kerr was accordingly awarded a one-third interest, or $315 000, in the matrimonial home (Baranow’s home) by application of the equitable doctrine of resulting trust, or, in the alternative, unjust enrichment. An explanation of the elements of the doctrines of resulting trust, constructive trust, and unjust enrichment, as follows:

[42] A resulting trust is an equitable doctrine that, by operation of law, imposes a trust on a party who holds legal title to property that was gratuitously transferred to that party by another and where there is evidence of a common intention that the property was to be shared by both parties. In these circumstances, the law raises a rebuttable presumption of a resulting trust to the transferee.

[43] A constructive trust is an equitable remedy that provides proprietary relief for property in the name of another, where a claim of unjust enrichment is established by the non-owning party and a monetary award based on quantum meruit would not be adequate. The three-fold elements of unjust enrichment include enrichment, a corresponding deprivation, and the absence of a juristic reason for the enrichment. [Emphasis added]

Madam Justice Smith, writing for the British Columbia Court of Appeal, held that the requirements for making out a resulting trust were not met. First, Kerr’s transfer of her property was not gratuitous. Baranow acquired title upon the mortgage that was under foreclosure at great expense to himself by paying the outstanding judgments, taxes, charges, as well as going on to pay regular future payments associated therewith. Smith J.A. found the trial judge’s findings on this issue to be a palpable and overriding error, as is the deferential standard of review in respect of findings of fact.

Having concluded that the presumption of resulting trust cannot apply to the circumstances of this case, it was unnecessary for Smith J.A. to address the common intention requirement for establishing a resulting trust. She commented on it anyway, finding flawed the trial’s judge notional transfer of an earlier common intention to share Kerr’s home to a common intention to share Baranow’s home. Smith J.A. brought specific attention to the separate financial arrangement they maintained throughout their relationship.

Smith J.A. then turned to Kerr’s claim for unjust enrichment, noting the fundamental difference between conventional marriages and common-law relationships in dividing assets:

[66] The mutual exchange of “spousal” services is typical in most marriage and marriage-like relationships. In cases involving the breakdown of a conventional marriage the valuation of those services is unnecessary because the [Family Relations Act] provides for a prima facie presumption of equal entitlement to family assets upon the happening of a defined triggering event. However, as was noted in Walsh, individuals who choose to live together outside a conventional marriage are not subject to any legislative presumption of the sharing of assets upon the breakdown of their relationship. They must establish [the elements of unjust enrichment: 1)] enrichment, [2)] deprivation and [3)] an absence of juristic reason for the enrichment in order to obtain a monetary award or a remedial constructive trust over property in the other spouse’s name. The inquiry into the absence of juristic reason involves an examination of whether the claimant had a legitimate expectation to share in the other’s assets both during and after the relationship has ended.

As part of establishing such an absence of juristic reason, the court should have regard to the reasonable or legitimate expectations of the parties. Smith J.A. found,

[m]orever, in order to determine the legitimate expectations of the parties, the court must undertake a global analysis of the facts of each case to see whether the enrichment was unjust (based on expectations of sharing) or whether the benefits received were simply part of a mutual exchange of “spousal” services that typically occurs in most marriage or marriage-like relationships. [Emphasis added]

Smith J.A. drew this from Thomas v Fenton, 2006 BCCA 299. In that case, the trial judge concluded that the conferring of benefits by the husband relating specifically to the renovations was automatically without juristic reason. Taking a broad view, or “global analysis”, however, the British Columbia Court of Appeal looked at the whole of the relationship and found “nothing unfair or unjust in this arrangement[:] Ms. Fenton provided Mr. Thomas with essentially free room and board for almost 30 years. … It is manifestly clear that Ms. Fenton bestowed far more on Mr. Thomas than he bestowed on her.”  Accordingly, Smith J.A. found in this case that Baranow’s direct and indirect contributions (monetary and otherwise) over the course of the relationship to be greater than those of Kerr’s, so as to be the juristic reason by the lack of which Kerr’s claim of unjust enrichment must fail.

It is this “global analysis” espoused by the British Columbia Court of Appeal, concerning unjust enrichment and thus the division of property in common-law relationships, that appears to be the main finding of law in contention on appeal (“Whether the Court of Appeal erred … in holding that it is an error in law for a trial judge to apply a general fairness test when considering resulting trusts or unjust enrichment for a division of property”). While I am admittedly not yet well-versed in the intricacies of family law, I will nonetheless attempt to comment on the seeming justness of the principle, as purported to in this judgment.

At first glance, it seems difficult to see why a claim for benefits unjustly conferred should not remain severable from the ongoing exchange of unrelated benefits characteristic of marriage or marriage-like cohabitation. Why should a determination of one party’s proprietary interest in the matrimonial home by necessity take into account, say, the other party’s prior and ongoing caregiving services? A safe development of the law, short of a global analysis, would be to espouse and allow for a flexible “contextual” analysis that broadly strives to take into consideration as many factors and circumstances relevant to the subject matter as possible, though not by requirement any more than that.

But may we go further, and mount a defence of the so-called “global analysis”? I believe so. Unjust enrichment, which is an element of the constructive trust, is not as restrictively defined as a resulting trust (wherein a proprietary interest only arises from a prior property transfer). The Court of Appeal’s global analysis thus accords with the broader concept of unjust enrichment.  The real question, though, is: why should relevance or relatedness to the matter (i.e. Kerr and Baranow’s competing conferred benefits in regards to the matrimonial home) be that which bounds or hinges the claim? Forgetting relatedness, it should be a matter of validity. In other words, what principled reason ought to prevent a plea for a disgorgement of benefits unjustly conferred from being set off by any other prior benefits taken into consideration and correspondingly deemed by a court to be equally unjustly conferred, and so equally validly disgorgible? Such an approach, which looks into and acknowledges all that the parties have painfully invested into the relationship, would seem better.  It is more comprehensive, and thereby perhaps more just, and more conclusive.

Turning back one last time to the case at hand, it would seem that even if a global analysis is rejected in favour of the plaintiff, there would still be no relief: the core of the claim, the finding of a contribution by Kerr of $60k towards the aquisition of Baranow’s property, was found by the Court of Appeal to be a palpable and overriding error on the part of the trial judge.  It would be a shame, however, if the Supreme Court of Canada were merely to uphold the Court of Appeal’s judgement on this narrower ground and pass by this opportunity to truly ‘go global’.