Haigh v. Kent: Unjust Enrichment and the Constructive Trust in the Context of a Joint Venture

June 12, 2014

The facts of this case relates to a joint venture that collapsed after more than 20 years.  A majority of the B.C. Court of Appeal upheld the trial judge’s decision that an unjust enrichment had occurred, and upheld the trial judge’s award of a 25 percent constructive trust interest in the appellant’s property on which the joint venture had operated.

The parties to the action were brothers-in-law, with Mr. Kent married to Mr. Haigh’s sister, Penny.  In 1980 Mr. Kent invited Mr. Haigh and his wife to live on his property, and told him that it would always be available to them as a home.

Mr. Kent and Mr. Haigh worked together to get a resort running on the property, with Mr. Haigh’s contribution including the construction of extensive upgrades and additions, repairs, and maintenance.  He also constructed an A-frame house for himself and his wife that doubled as a manager’s office.  There was never any formal business arrangement between the two men, and Mr. Kent always ran the resort as a sole proprietorship.

In 2004, the two parties “fell out.” Mr. Haigh stopped working at the resort, but continued to live with his wife in the A-frame house he had built on the property.  Eventually, Mr. Kent sought to have Mr. Haigh and his wife removed from the property. At trial, Mr. Haigh took the position that Mr. Kent had been unjustly enriched by his years of work, and that he was entitled to a proprietary remedy through a constructive trust.  Mr. Kent responded that there had been no unjust enrichment, and that in any event Mr. Haigh was only entitled to restitutionary damages.

Unjust Enrichment

The trial judge accepted the argument that Mr. Kent had been unjustly enriched by Mr. Haigh’s years of work.  Mr. Kent’s business had clearly benefited from Mr. Haigh’s assistance.  The relationship between the two men did not constitute a partnership, in part because they had never shared in the resort’s income, and in part because Mr. Kent’s control of the business was inseparable from his ownership of the property.

The trial judge rejected Mr. Kent’s argument that the years spent living in the cabin on the property could serve as compensation.  Taking into account the reasonable expectations of the parties, he ruled that there could never have been a serious belief on the part of the either party that the provision of these living accommodations was intended to be any form of compensation.  Mr. Kent had offered to let Mr. Haigh live on the property, and Mr. Haigh had also worked on the resort; one had not had anything to do with the other.

The Court of Appeal also recognized that Mr. Haigh understood that he would be benefiting from the business.  As the business could not be separated from the property itself, there was a strong rationale for vesting Mr. Haigh with a proprietary interest.  Because both parties had expected to benefit from their arrangement, these expectations were relevant both in determining that there had been an unjust enrichment, and in determining the appropriate remedy.

Upon the finding that an unjust enrichment had occurred, the Court of Appeal continued their analysis with the determination of the appropriate remedy in the circumstances.

The Constructive Trust Remedy

Both the Supreme Court of B.C. and the B.C. Court of Appeal relied on Justice Cromwell’s statement in Becker v. Pettkus, [1980] 2 S.C.R. 834, that the existence of a joint venture, and the benefits it would create, was a rationale for granting a proprietary remedy in circumstances where the parties did not have a precise expectation of earning an interest in certain properties, but nevertheless expected to benefit from their contributions.

Once the determination was made that a joint venture existed (the Court of Appeal did not comment on how this determination was made), the court ruled that, in the circumstances, Mr. Haigh was entitled to a proprietary reward.

What is significant about this case is that a trust was granted over a percentage of the property as a whole, rather than against a particular subject such as a farm (as in Kerr v. Baranow, 2011 SCC 10) or house (as in Peter v. Beblow, [1993] 1 SCR 980) (which was the more typical result in other cases of unjust enrichment and constructive trusts). Justice McLachlin (as she then was), writing in Peter v. Beblow, stated that the plaintiff must establish a “direct link” to the property that is to be subject to the trust, and that their contribution must be substantial.

By broadening this link to include all proprietary assets, the Court in Haigh v. Kent has made a significant contribution to the law of unjust enrichment in a joint venture situation.  It seems to have built on Justice Cromwell’s ruling in Kerr v. Baranow, that where there is no link between the unjust enrichment and a specific property, there may still be a link between their joint efforts and the accumulation of wealth, or rather, between the “value received” and the “value surviving.”  The “value surviving” in the instant case was deemed to be the entirety of the property, especially since this property was inseparable from the business as a whole, and the “value received” was Mr. Haigh’s contribution to the land.

A direct link was effectively recognized between the parties’ joint venture and the entirety of the land it had been directed towards.  The parties worked together on the land for decades, with no special link to any one element of the property over any other.  The failure on Mr. Kent’s part to share assets acquired through the parties’ joint efforts was sufficient for the Court to impose the trust, and consequently the trial judge determined that 25 percent of the total proprietary assets was the appropriate quantum for the remedy, which was upheld on appeal.

But why impose a proprietary remedy at all? The dissenting judge at the Court of Appeal, although agreeing on the issues of unjust enrichment and the joint venture, would have awarded restitutionary damages, the typical award in cases of unjust enrichment. The majority of the Court of Appeal accepted the trial judge’s reasoning that a proprietary remedy was most appropriate.  They noted that Mr. Haigh had contributed to both the property and the business, creating a strong case for his interest to be retained in both.  The trial judge also pointed out that the creation of a trust would entitle him to a portion of the proceeds in the event that the land was sold.  Notably, the judge also noted that this remedy would hold Mr. Kent to the promises he had made when he invited Mr. Haigh to live on the property.

Conclusion

In affirming the trial judgment, the B.C. Court of Appeal has taken a significant step by applying the law of joint ventures as set out in Kerr v. Baranow to circumstances other than cohabitation. Whereas previously constructive trusts resulting from a joint venture in a commercial context were only hinted at in the jurisprudence, they now have an explicit jurisprudential basis.

This case is an excellent demonstration of the need to formalize business arrangements.  The informal, unstructured relationship between the parties here ultimately led to one of them losing 25% of his proprietary interest, and the other spending years battling in the courts.

With the concept of a joint venture still technically undefined by the courts, all parties take a substantial risk by relying on their eventual intervention, to say nothing of the cost in both time and money that would be expended whichever way any litigation is, eventually, decided.  Once a court determines that a joint venture has existed, they may divide the “value survived” as they deem most appropriate. Haigh v. Kent adds the possibility, or perhaps the uncertainty, that in addition to a monetary award, they may grant a proprietary interest in any property that had formed the basis of the joint venture.

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