Sean E. Cumming and Percy Ostroff, for the appellant Canadian Imperial Bank of Commerce.
James M. O'Grady, Q.C. and Barry Kwasniewski, for the respondent Jeffrey Barnabe.
John A. Hollander, for the respondent John R. Sigouin.
Before: McKinlay, Catzman and Abella, JJ.A
We agree with counsel for the appellant that the order of Bell J. requiring that property of the bankrupts Touhey and Sigouin be held on a constructive trust in favour of the respondents has the effect of granting to the respondents a floating charge over all of the assets of the bankrupts in priority to the other creditors of the bankrupts.
We are of the opinion that the remedy of constructive trust is not appropriate in the circumstances. To dispose of this appeal, it is not necessary to refer to all of the arguments dealt with by counsel, since we are of the view that the unjust enrichment on which the constructive trust remedy is based does not exist in this case. To establish the unjust enrichment, there must be some specific property which is the subject of the enrichment, that property must have been retained by the person holding it in deprivation of the party claiming the trust, and there must be no juristic reason for the retention.
As to the first requirement, in this case there is no specific property which is the subject of the trust. The property ordered held comprises all of the property of the bankrupts. This alone would probably be sufficient to decide the appeal. However, we will comment on the other requirements to establish an unjust enrichment.
As to the second requirement -- that the property must be held in deprivation of the party claiming the unjust enrichment -- it is clear that the parties which are said to hold the trust property -- the Canadian Imperial Bank of Commerce ("the Bank") or Messrs. Touhey and Sigouin -- do not hold it in deprivation of the respondents. The property said to be the subject of the trust is money which, by the order of Farley J., dated May 17, 1990, should have been paid back to the accountant administering the assets of the original "1986" partnership. The motions judge found that these monies, which were not paid back as they should have been, were deposited in the Bank and used to support the operations of the new "1990" partnership. There is no evidence which clearly establishes that this money was ever paid into the account of the new partnership at the Bank. However, even if it was, there is no evidence that indicates that the funds remain in the hands of the Bank. Indeed, the account involved has generally been in negative balance, and, since it was an operating account of the new partnership, funds were paid in and out of the account over a period in excess of four years before the motions judge made the order imposing a constructive trust. Under those circumstances it is almost impossible to show any true connection between funds which may have been deposited in the "1990" partnership account and the assets of that partnership or of the bankrupts. To overcome this problem the motions judge imposed a constructive trust over all of the assets of the bankrupts. This is contrary to clear law which requires that a constructive trust be imposed over specific property in which the person claiming the trust has a reasonable expectation of obtaining a property interest. While the respondents may not have succeeded in having funds returned to the accountant by Touhey and Sigouin, as required by the order of Farley J., they were not deprived of any of the assets which were made the subject of the constructive trust. They were merely unsecured creditors of Touhey and Sigouin.
As to the third requirement -- that there be no juristic reason for the retention of the property -- there are at least two juristic reasons why the Bank should retain the funds involved (if they were in fact deposited in the "1990" partnership account). First, the Bank, through the account of the "1990" partnership, financed at least some of the operations of that partnership. In order to do so, it obtained security over the receivables and other assets of the partnership, which are subject to the order of Bell J. It was in reliance on that security that the Bank financed the operations of the "1990" partnership. It was entitled to retain any funds which may have been paid into the account to reimburse it for payments out of the account, and it was entitled to its security for the purpose of securing payment. The second juristic reason for retention of the funds is that the order of Farley J., by its terms, anticipated that the funds paid over by the accountant administering the assets of the "1986" partnership would be returned only if needed and demanded. Funds were also paid over to the other partners in the "1986" partnership, and none were required by the order to hold any funds in trust; indeed, any such order would have rendered the original payment over of no practical benefit to any of the partners.
While a constructive trust, if appropriately established, could have the effect of the beneficiary of the trust receiving payment out of funds which would otherwise become part of the estate of a bankrupt divisible among his creditors, a constructive trust, otherwise unavailable, cannot be imposed for that purpose. This would amount to imposing what may be a fair result as between the constructive trustee and beneficiary, to the unfair detriment of all other creditors of the bankrupt.
The appeal is allowed with costs, and the judgment of Bell J. is set aside to be replaced by a judgment dismissing the application with costs.