The Supreme Court Redefines Resulting Trusts and the Legal Meaning of “Gift” in Nishi v. Rascal Trucking Ltd.

The tangled case of Nishi v. Rascal Trucking Ltd., 2013 SCC 33, is a classic example of the complicated conflicts that can occur when people mix business dealings with personal friendships.  

The unanimous decision of the court appears to reaffirm the doctrine of purchase money resulting trust.   However, Justice Rothstein managed to do it in a manner that achieved an apparently equitable compromise.  The principle of resulting trust was superficially affirmed, but there was no resulting trust found on the facts.   There may in fact be an effective weakening of the doctrine of resulting trust implicit in this decision.

At the heart of the case is the purchase of a plot of land by Mr. Nishi for about $240,000.  Of this amount, about $110,000 was provided by Rascal Trucking.   Rascal argued that it had become a part owner of the land, based on the equitable doctrine of purchase money resulting trust.  This ancient principle holds that where one party advances money to another party in the absence of a familial relationship, there is a presumption that the money was not a gift, and there is instead an implicit bargain.  

This presumption is rebuttable.  At trial, Rascal’s owner testified that he wanted to own a portion of the land for his business.  He had made this clear to Mr. Nishi, and he appeared to be willing to gamble on Mr. Nishi’s good will without an explicit agreement.  Mr. Nishi, for his part, had made it clear that he did not want to give up any portion of the land.  He only accepted the money following a written statement from Rascal that it was provided “without any conditions or requirements.”

Mr. Nishi had won his case at trial.  The trial judge found evidence that Rascal’s actual motive for giving the money to Mr. Nishi was remorse over a past debt to Mr. Nishi’s common law partner.

The BC Court of Appeal overturned the trial judge’s decision.   It ruled that he erred in rejecting a resulting trust where money was advanced without it being an outright gift.

The land in question had previously belonged to a company, Kismet, controlled by Mr. Nishi’s common law partner.  It had been leased to Rascal, who caused a $110,000 tax penalty by creating a nuisance.  As a result of the penalty, Kismet defaulted on its mortgage, and Mr. Nishi bought the land from the mortgagee under power of sale.  Both the trial judge and the Supreme Court placed great significance on the fact that Rascal’s payment to Mr. Nishi was exactly the amount of the penalty that it should originally have paid on behalf of Kismet.

On his appeal, Mr. Nishi argued that the BCCA’s finding of a resulting trust may have been correct on technical grounds, but it was inequitable.   Therefore, he asked the court to discard the doctrine of resulting trust as too inflexible.    He argued that resulting trust was an aspect of the law of restitution, and no restitution is called for in the absence of unjust enrichment.   Here, there was no unjust enrichment.  Rascal’s payment merely assisted Mr. Nishi and his partner in regaining the land that they had lost due to Rascal’s previous wrongdoing.

The Supreme Court was sympathetic to the equity inherent in Mr. Nishi’s claim.   However, they were quite disinclined to abandon resulting trust.  In particular, they cited the long line of precedent, and the undesirability of overturning past decisions of their own court, reached by a strong majority, without a compelling reason.  The issue of resulting trust had come up just two years earlier, in Kerr v. Baranow, 2011 SCC 10, where it was supported by a unanimous decision:

While flexibility is no doubt desirable in certain areas of the law, the purchase money resulting trust provides certainty and predictability because it relies on a clear rule for determining who holds the beneficial interest in a property. Absent strong dissenting opinions in this Court, contrary decisions in provincial appellate courts or significant negative academic commentary [would not] justify disturbing such a settled area of the law.  (para. 28).

Some may find it ironic that Justice Rothstein praised the doctrine of resulting trust for providing certainty and reliability.   The outcome in this case was hardly predictable, and it is not obvious that his compromise creates any certainty for the future.

Justice Rothstein forged a compromise that bridged the gap between the trial judge’s finding and the doctrine of resulting trust.  In order to rebut a resulting trust, there must be evidence of an intention to give a gift.   The mistake made by the Court of Appeal, according to Justice Rothstein, was in holding that for this purpose the legal concept of a gift was the same as the everyday idea of a gift:

The concerns that Mr. Nishi raised in how the Court of Appeal applied this test to the facts here can be resolved more appropriately by considering the legal meaning of the word gift…. the legal concept of a gift is broad enough to include the type of advance made in this case. Legal gifts do not require philanthropic motivations.  (para. 27)

The decision seems to overturn the common law rule that a gift requires an intent by the donor to give a gift.  Perhaps it will not create a significant precedent, as it may be confined to the peculiar facts of this case.  If it were to be applied more generally, blurring the line between gifts and bargains could have far reaching and potentially disturbing implications.

This is another decision with the characteristic touch of Justice Rothstein.  The Supreme Court appears to follow established law, but a subtle change in a definition leads to an unexpected outcome.  A similar situation occurred in Daishowa-Marubeni International Ltd. v. Canada, 2013 SCC 29, recently reviewed at TheCourt.  One hopes that this will not create grounds for the old criticism that “equity varies with the length of the Chancellor’s foot.”