How Many Rights (or Wrongs) Make a
Remedy? Substantive, Remedial and
Unified Constructive Trusts
Stuart Hoegner”
Traditionally, the common law has employed two
types of constructive trusts: (1) the substantive con-
structive trust, a remedy for breach of express trust or
breach of fiduciary duty; and (2) the remedial con-
structive trust, a remedy for unjust enrichment. In re-
cent years, however, the Canadian courts have sub-
sumed the substantive constructive trust under the re-
medial constructive trust, which requires a finding of
unjust enrichment.
The difficulty that arises under this new unified
form of the remedial constructive trust is that tradi-
tional breach of duty claims that do not fall under the
unjust-enrichment principle are now excluded from a
constructive-trust remedy. Many of the traditional
cases, however, may warrant the operation of a con-
structive trust, even if the wrong committed does not
involve a detriment by subtraction to the plaintiff, as is
required by the principle of unjust enrichment.
Changing the definition of unjust enrichment to
include cases of enrichment by wrongdoing without a
corresponding detriment by subtraction to the plaintiff
would overly broaden and distort the concept of unjust
enrichment. To preserve the integrity and clarity of the
analysis in situations where a constructive trust is war-
ranted, the courts should therefore return to the separa-
tion between the substantive and remedial constructive
trusts.
Traditionnellement,
la common law a reconnu
deux types de fiducie judiciaire (ou fiducie par interpr6-
tation) : (1) la fiducie judiciaire substantielle, qui sert h
rem&lier aux bris d’obligations fiduciaires et (2) la fi-
ducie judiciaire corrective, qui sert h corriger un enri-
chissement injustifi6. Au cours des demi res ann es,
les tribunaux canadiens ont toutefois abandonn6 la dis-
tinction entre ces deux types de fiducie et ont sournis ]a
fiducie judiciaire substantielle aux conditions de la fi-
ducie judiciaire corrective, en exigeant qu’il y ait d6-
monstration d’un enrichissement injustifi6.
Cette thdorie unitaire de la fiducie judiciaire sou-
10ve toutefois diverses difficult6s. En effet, les bris
d’obligation fiduciaire qui ne s’apparentent pas t un
enrichissement injustifi6 ne donnent plus lieu t la cr6a-
tion d’une fiducie judiciaire. I1 semble toutefois oppor-
tun, dans un grand nombre de cas, d’imposer Ia cr6a-
tion d’une telle fiducie meme lorsque le demandeur ne
pent d6montrer qu’il a subi un appauvrissement corr6-
latif t l’enrichissement du d6fendeur.
II est impossible d’dtendre
la d6finition de
l’enrichissement injustifi6 afin d’inclure les cas o4 le
demandeur ne souffre pas d’appauvrissement corrlatif.
Cela aurait pour effet d’6tendre indflment le domaine
injustifi6. Afin de pr6server
de
l’int6grt et la limpidit6 de la distinction 6tablie entre
les cas d’enrichissement injustifi6 et les cas de bris
d’obligation fiduciaire, les tribunaux devraient donc A
nouveau adopter la distinction traditionnelle entre la fi-
ducie judiciaire substantielle et ]a fiducie judiciaire cor-
rective.
l’enrichissement
‘This note was written as part of a directed research project at the University of Toronto Faculty of
Law under the supervision of Professor Jim Phillips, whom I wish to thank for his valuable guidance
and suggestions. I also wish to thank the editors of the McGill Law Journal for their helpful com-
ments. Any errors in the paper are, however, mine alone.
McGill Law Journal 1997
Revue de droit de McGill
To be cited as: (1997) 42 McGill LJ. 437
Mode de r6f6rence : (1997) 42 R.D. McGill 437
438
MCGLL LAW JOURNAL/REVUEDEDROITDE MCGILL
[Vol. 42
Introduction
I. The Development of the Constructive Trust and the Emergence of
the Unified Constructive Trust
A. Substantive Constructive Trust
B. Remedial Constructive Trust
C. Unified Constructive Trust
I1. The Unified Constructive Trust: Problems and Solutions
Conclusion
1997]
S. HOEGNER – CONSTRUCTIVE TRUSTS
A constructive trust is the formula through which the conscience of
equity finds expression. When property has been acquired in such cir-
cumstances that the holder of the legal title may not in good conscience
retain the beneficial interest, equity converts him into a trustee.1
Benjamin Cardozo
Introduction
The constructive trust appeared two-and-a-half centuries ago to redress breach of
trust. Since then, the constructive trust has been used to discipline those who profit in
breach of their fiduciary duties. The remedy is a strong incentive for fiduciaries not to
breach their duties of loyalty and honesty to their beneficiaries. The constructive trust
has also recently emerged as a response to unjust enrichment, even though unjust en-
richment has traditionally been remedied with money restitution Few doubt the im-
portance and propriety of the unjust-enrichment constructive trust, especially in cases
where property is being divided after a long-term intimate relationship: should only
one party retain the benefit of joint effort just because this person holds title to the
property acquired or improved by the joint effort? The constructive trust gives the
plaintiff in those cases a share of the property in order to correct the unjust enrich-
ment.
Both forms of the constructive trust have now been unified by the Canadian
courts under the banner of the “remedial” constructive trust based on unjust enrich-
ment. That is, all of the situations giving rise to a constructive trust are now said to be
captured by the unjust-enrichment principle. Part I traces this development from the
origins of the constructive trust in English common law to its adoption as a remedial
device for unjust enrichment. An exploration of how the Canadian courts formulated
the “unified” constructive trust ends this part.
The unified conception raises serious issues about the theoretical basis for the
constructive trust. How many conceptually distinct legal rights are there that give rise
to the constructive-trust remedy? Consider Cardozo J.’s (as he then was) much-quoted
statement in a Canadian context: how many different injustices will give rise to a
constructive trust?3 So long as we can agree on the result, does it matter what right we
use to obtain it? These questions are examined in Part II, where I argue that the pres-
ent definition of unjust enrichment is unable to accommodate the traditional breach-
of-duty cases because the concept of corresponding detriment is limited to detriment
by subtraction. Part II also speaks to the difficulties that result from expanding the
idea of unjust enrichment. I argue that cramming the substantive-trust situations into
the unjust-enrichment principle will result in confusion and distortion in constructive-
‘Beatty v. Guggenheim Exploration Co., 122 N.E. 378 at 380, 225 N.Y. 380 (Ct. App. 1919)
[hereinafter Beatty].
2 See e.g. Deglman v. Guaranty Trust Co. and Constantineau, [1954] S.C.R. 725, [1954] 3 D.L.R.
785.
‘This question derives from Peter Birks’ statement on Cardozo J.’s dictum in Beatty, supra note I
(see P.B.H. Birks, An Introduction to the Law of Restitution (Oxford: Clarendon Press, 1989) at 64
(“All that needs to be underlined is that there are many injustices to be righted besides unjust enrich-
ment.”)).
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
[Vol. 42
trust doctrine. The solution proposed is the retention of the traditional distinction be-
tween constructive trusts based on unjust enrichment and constructive trusts based on
breaches of duty. These causes of action should be kept separate and each should give
rise to a constructive trust.
The history of the constructive trust is marked by opportunity. The Canadian
courts decided to employ the constructive trust to assist those to whom fiduciary du-
ties were owed; they then extended the remedy to redress unjust enrichment. There
followed a unification of the constructive-trust doctrine under the principle of unjust
enrichment. Now there is occasion to clarify the law and impose a more logical
structure on the Canadian constructive trust by revisiting that unification.
I. The Development of the Constructive Trust and the Emergence
of the Unified Constructive Trust
That the constructive trust has changed dramatically in both nature and scope
since the 1726 English case of Keech v. Sandford is axiomatic. What is often forgot-
ten is that many of these changes, at least in Canada, have occurred only in the last
twenty or so years This part outlines the development of the constructive trust from
its English origins to its recent applications in Canadian law. I first examine the sub-
stantive constructive trust; the jurisprudence on breach of express trust and breach of
fiduciary duty is considered under this heading. I then briefly outline the evolution
and characteristics of the newer remedial constructive trust. Finally, I show that the
development of the remedial constructive trust has culminated in the acceptance by
the Canadian courts of only one form of constructive trust –
the remedial construc-
tive trust based on unjust enrichment (what I call the “unified” constructive trust).
A. Substantive Constructive Trust
The so-called “traditional Anglo-Canadian approach” characterizes the construc-
tive trust as a substantive institution forcing a defendant to convey to the plaintiff
property that already belongs to the plaintiff.’ The substantive constructive trust is like
other trusts inasmuch as it gives equitable title to property to the trust’s beneficiary.
The constructive trust is, however, imposed by law and does not depend on the intent
of the parties.’ The administration of a constructive trust will likely create problems in
4 25 E.R. 223, Sel. Cas. t. King 61, 2 Eq. Cas. Abr. 741 [hereinafter Keech].
‘See e.g. D.W.M. Waters, Law of Trusts in Canada, 2d ed. (Toronto: Carswell, 1984) at 349-57,
384-89 [hereinafter Law of Trusts]; Rawluk v. Rawluk, [1990] 1 S.C.R. 70, 65 D.L.R. (4th) 161
[hereinafter Rawluk cited to S.C.R.].
‘See A.H. Oosterhoff & E.E. Gillese, Text, Commentary and Cases on Trusts, 4th ed. (Toronto:
Carswell, 1992) at 377.
7 See ibid at 366. But see D.W.M. Waters, Case Comment (1975) 53 Can. Bar. Rev. 366 at 370; J.L.
Dewar, “The Development of the Remedial Constructive Trust” (1982) 60 Can. Bar. Rev. 265 at 267-
68; Oosterhoff & Gillese, ibid at 371: “[A] constructive trust is not simply another type of trust. It is a
totally different, sui generis concept, which bears no relation to the express trust.”
‘ See Law of Trusts, supra note 5 at 377-78.
1997]
S. HOEGNER – CONSTRUCTIVE TRUSTS
many cases,’ so the general rule appears to be that “a constructive trustee does not
have the same obligations as an express trustee, such as duties of management. The
duty of a constructive trustee is simply to convey.”” It is settled that the substantive
constructive trust exists from the moment of the wrong to give the wronged party a
beneficial interest in the trust property.”
Keech’2 is the starting point for the law of constructive trusts.” In Keech, an ex-
press trustee took a lease on a market after it could not be renewed for the trust’s in-
fant beneficiary. It was clear that the child could not have acquired the new lease and
that the trustee had therefore acted innocently, not intending to deprive the beneficiary
of money or an investment opportunity. The Lord Chancellor nevertheless found that
the lease was held on constructive trust for the infant. King L.C. acknowledged that
“[t]his may seem hard, that the trustee is the only person of all mankind who might
not have the lease,”‘” but asserted that it was necessary to protect the beneficiary and
compel the trustee’s utmost loyalty and good faith. Keech is authority for the proposi-
tion that an express trustee must account for any property he receives because of his
trusteeship or his control of trust property.’5 Breach of express trust will result in the
imposition of constructive-trust machinery.
Keech can be contrasted with Crocker and Croquip Ltd. v. Tomroos.” Tornroos,
Crocker and Dietrich each held an equal number of shares in a British Columbia
company. They were the only owners. There was an agreement among the three that
if one of them wanted to sell his holdings, the others had a right of first refusal on the
shares. Tormroos died in 1936 and his will appointed his wife, Dietrich and Crocker as
executors and trustees of his estate. Soon after, Dietrich died and his widow inherited
his shares. While still a trustee for the Tormroos estate, Crocker bought the widow’s
shares for himself. After Crocker retired from the trust, the then trustees began an ac-
tion for one-half of the shares that he bought from the widow. The trustees alleged
breach of trust. Under the terms of Tornroos’ will, the trust would not have been able
‘ In many cases, the courts will not allow the cestui que trust to manage the trust’s affairs, for ex-
ample where there is a breach of confidence in a commercial relationship: see LAC Minerals Ltd. v.
International Corona Resources Ltd., [1989] 2 S.C.R. 574, 61 D.L.R. (4th) 14 [hereinafter Lac Min-
erals cited to S.C.R.]. This case is discussed below. Where the breach of trust (or fiduciary duty) is
innocent, the court may allow an express trustee to administer the trust and hold the profits on con-
structive trust for the beneficiary (see Keech, supra note 4).
” Oosterhoff & Gillese, supra note 6 at 371, citing R.H. Mandsley, “Constructive Trusts” (1977) 28
N. fr. Legal Q. 123 at 124. See also Oosterhoff & Gillese, ibid at 388.
” See Oosterhoff & Gillese, ibid. at 377-78, 380. See also Atlas Cabinets & Furniture Ltd. v. Na-
tional Trust Co. (1990), 68 D.L.R. (4th) 161 at 173, 45 B.C.L.R. (2d) 99 (C.A.) [hereinafter Atlas
cited to D.L.R.], per Lambert J.A. in obiter dicta: “If a substantive constructive trust is found to have
arisen in that way then there is no discretion remaining in the court to refuse to declare the existence
of the trust.”
2 Supra note 4.
33 See Oosterhoff & Gillese, supra note 6 at 358; Law of Trusts, supra note 5 at 398.
‘ Keech, supra note 4 at 223.
This is also the law in Canada (see e.g. Krendel v. Frontwell Investments Ltd., [1967] 2 O.R 579,
64 D.L.R. (2d) 471 (H.C.J.)).
‘6 [1957] S.C.R. 151, 7 D.L.R. (2d) 104 [hereinafter Tornroos cited to S.C.R.].
MCGILL LAW JOURNAL!REVUE DE DROITDE MCGILL
[Vol. 42
to purchase the shares anyway because they were too speculative and were not
“trustee investments”.’7 Kellock J. concluded: “The fact that the Tomroos estate could
not be a buyer was not due to anything for which the appellant Crocker, by reason of
any act or default of his, as trustee, was responsible.”‘8 This result appears to contra-
dict Keech: express trustees may take opportunities for themselves when the trust
cannot take advantage of them. Perhaps the difficulty is not as great as it seems, The
important principle is that express trustees are liable as constructive trustees for prop-
erty received by breaching the express trust; Tornroos illustrates that it is not always
clear what will be considered a breach of trust –
a different point that does not con-
cem us here.’
Breach of fiduciary duty may give rise to a constructive trust for the same sorts of
reasons breach of express trust does, although the fiduciary duty does not involve the
holding of trust property. As with express trusts, the law has traditionally taken the
view that because of the value we ascribe to the fiduciary relationship, it is important
to have a powerful prophylactic device at hand to discourage breaches of fiduciary
duty.” A fiduciary duty is a duty of utmost loyalty:
The common idea is that of trust, in its more colloquial meaning of placing
confidence in, and reliance upon, the honest performance of some task or un-
dertaking…. What is involved where fiduciaries are concerned entails some-
thing more positive than not making mistakes or behaving carelessly or indif-
ferently; it refers to doing whatever is necessary in the circumstances to ensure
that the interests of the person relying on the fiduciary are pursued with vigour
and at the expense of all else to the best endeavour of the one on whom reli-
ance is placed. Honesty is the key, not simply care.’
It is incontrovertible that in principle the constructive trust is available as a remedy for
breach of fiduciary duty; by preventing and, where necessary, redressing breach of fi-
duciary duty, the constructive trust promotes the fiduciary’s loyalty.
The English House of Lords has repeatedly held that breach of fiduciary duty
may give rise to a constructive trust. In Boardman v. Phipps, a solicitor and a trust
beneficiary each held themselves out as agents of the trustees. They had no authority
to act on the trust’s behalf. Through this agency they obtained information which
helped them to buy shares for themselves in a company –
a company in which the
trust already held an interest. Even though they were able to better manage the com-
pany than previous management, resulting in a profit to the trust (and to themselves),
the House of Lords decided that this was a breach of fiduciary duty. The solicitor and
at 159.
‘7/bid. at 153, 155.
‘9 /bi
“See Law of Trusts, supra note 5 at 398.
20See e.g. Attorney-Generalfor Hong Kong v. Reid, [1994] 1 A.C. 324, 1 All E.R. 1 at 4-5 (P.C.)
[hereinafter Reid cited to All E.R.].
2’G.H.L. Fridman, Restitution, 2d ed. (Toronto: Carswell, 1992) at 370-71. See generally E.J. We-
inrib, “The Fiduciary Obligation” (1975) 25 U.T.LJ. 1; Frame v. Smith, [1987] 2 S.C.R. 99, 42
D.L.R. (4th) 81.
22(1966), [1967] 2 A.C. 46, [1966] 3 All E.R. 721 (H.L.) [hereinafter Boardman].
1997]
S. HOEGNER – CONSTRUCTIVE TRUSTS
443
the beneficiary would never have received the information had it not been for their
close relationship with the trust. The two would therefore never have profited on this
investment had they not exploited their positions as fiduciaries. The remedy was a
constructive trust composed of the profits made by the two defendants on the scheme.
The English courts are also willing to impose a substantive constructive trust
where a fiduciary accepts bribes in breach of his duty.’ This is illustrated by the recent
case of Attorney General for Hong Kong v. Reid.”4 Reid was the director of public
prosecutions in Hong Kong. He took bribes to obstruct the prosecution of certain
criminals and was subsequently convicted under an anti-corruption ordinance. In the
meantime, Reid used the bribes to buy New Zealand properties. The court decided
that Reid had held the bribes on constructive trust for the Crown as soon as he had re-
ceived them. This was the corollary of the court’s clear conclusion that Reid accepted
the bribes in breach of his fiduciary duty to the Crown.’ That the Crown lost nothing
over the bribes was irrelevant;”6 what mattered was Reid’s gain through the exploita-
tion of his position. Since the bribes were trust property, and not just a debt owed by
Reid, the Crown qua beneficiary could trace them into the New Zealand properties.
The Crown’s right in rem also meant that Reid could not keep any surplus of value of
the properties over the bribes, and that he was bound to make good any shortfall if the
properties were worth less than the bribes. Where a fiduciary breaches his duty by ac-
cepting a bribe, and the bribe can be traced into other property, the constructive trust
will be available to remedy the breach even where there is no prior link between the
beneficiary and the property.
B. Remedial Constructive Trust
The substantive constructive trust is not the only form of constructive trust that
has appeared in Canada. In fact, much of the discussion about the constructive trust in
“This has not always been the case. In Lister & Co. v. Stubbs (1890), 45 Ch.D. 1, [1886-90] All
E.R. Rep. 797 (C.A.) [hereinafter Lister], the defendant Stubbs was paid secret commissions in his
capacity as the plaintiff’s (Lister’s) agent for buying inventory. Stubbs used a large portion of these
bribes to buy property. When Lister found out about the payments, it sought to recover from Stubbs
by tracing the commissions into the property. The court held that the secret payments could be recov-
ered. Since the money never belonged to Lister –
the money was paid by the vendor directly to
Stubbs –
the relationship between Stubbs and Lister was that of debtor and creditor, respectively, and
not that of trustee and beneficiary.
This approach is consistent with the more recent English decision in Reading v. Attorney-
General, [1951] A.C. 507 (H.L.) [hereinafter Reading]. Reading was a sergeant in the British Army
in Egypt in the mid-1940s. He was bribed by smugglers to accompany a truck around Cairo. He was
dressed in uniform, which ensured that the truck would not be inspected. Reading was successfully
court-martialled. The House of Lords held that the Crown should recover the monies paid to Reading
in breach of his fiduciary duty. The restitution was a money damage award, not a constructive trust.
These cases have been effectively overturned by Reid, supra note 20.
24Ibid
2 See ibid at 4.
26While the Crown’s conviction rate or reputation may have suffered, it did not suffer a
“subtractive” wrong (see text below, accompanying notes 52-58).
444
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
[Vol. 42
this country in the last two decades has concerned the remedial, or unjust-enrichment,
constructive trust. A detailed recapitulation of the development and application of the
Canadian remedial constructive trust is not my objective here. That story is well-
I therefore want to of-
known to most readers and is, at any rate, told well elsewhere’
fer only a brief look at why the remedial constructive trust developed and succinctly
review the criteria for unjust enrichment enunciated in Pettkus v. Becker.” This short
review is necessary to set the stage for the Supreme Court’s adoption of the unified
constructive trust, which is discussed in more detail below.
The remedial constructive trust allows the courts to give a proprietary equitable
remedy in cases where there is no pre-existing special relationship between the par-
ties. The remedial constructive trust relies on unjust enrichment as the underlying
cause of action.” A majority of the Supreme Court held in Rawluk v. Rawluk’ that the
constructive trust arises at the date at which the unjust enrichment first occurred,’ but
at least one appellate court has more recently stated that the remedial constructive
trust comes into being when the judicial order declaring the trust is made.2 The re-
medial constructive trustee’s obligation is to convey the property; there are no active
duties of management.
The origin of the remedial constructive trust must be understood primarily as a
judicial response to the perceived inequity of property division in marriage break-
down. These outcomes were generated by the application of the resulting trust.’
Throughout the 1960s and 1970s, the resulting trust was increasingly seen as giving
rise to unfair results in family law cases: “Given modem social conditions, where
very often both parties are working to improve the economic position of the family
unit, it became apparent to the courts that an application of the traditional rules did not
necessarily produce a just result between them.”3 By the early 1970s, several courts
were looking for new equitable tools to address the shortcomings of the resulting
trust. The Supreme Court, however, continued to faithfully apply the resulting-trust
doctrine to property-division cases.
27See e.g. Law of Trusts, supra note 5 at 299-427.
28 [1980] 2 S.C.R. 834, 117 D.L.R. (3d) 257 [hereinafter Pettkus cited to S.C.R.].
9 See ibid. at 847; Rawluk, supra note 5 at 86; D.W.M. Waters, “The Constructive Trust in Evolu-
tion: Substantive and Remedial” (1990-91) 10 Est. & Tr. J. 334 at 362, 375-82 [hereinafter “The
Constructive Trust in Evolution”]. Compare M.M. Litman, “The Emergence of Unjust Enrichment as
a Cause of Action and the Remedy of Constructive Trust” (1988) 26 Alta. L. Rev. 407 at 415-18.
30 Ibi.
3′ See ibid. at 91-92.
32See Atlas, supra note 11 at 173. According to Lambert J.A., this is what distinguishes the reme-
dial from the substantive constructive trust. See generally Oosterhoff & Gillese, supra note 6 at 380-
85.33 See Oosterhoff& Gillese, ibid at 371,388.
On the resulting trust generally, see Law of Trusts, supra note 5, c. 10.
3
‘ Dewar, supra note 7 at 291. See also Law of Trusts, ibid. at 346.
6 See e.g. Trueman v. Trueman (1971), 18 D.L.R. (3d) 109, 2 W.W.R. 688 (Alta C.A.); Hussey v.
Palmer, [1972] 1 W.L.R. 1286, [1972] 3 All E.R. 744 (C.A.).
1997]
S. HOEGNER – CONSTRUCTIVE TRUSTS
445
The Supreme Court’s posture changed in 1980 with the decision in Pettkus,’1
which is the most important Canadian decision on the remedial constructive trust. Mr.
Pettkus and Ms. Becker lived together in a common-law relationship from 1955 to
1974, save for a brief separation in 1972. During the cohabitation, Pettkus built up a
successful bee-keeping business and purchased property for that business. Becker,
through labour and earnings, contributed substantially to this business and the land
acquisition; at various times she paid for rent, expenses and renovations. This helped
Pettkus buy the first farm by freeing up his funds for that purpose. Becker worked
extensively in the bee-keeping business. The monies to buy more business properties
came largely from business income and partially from Becker’s direct contributions.
When Becker left Pettkus, she took a car and $2,600 in cash.
The Court granted Becker a one-half proprietary interest in all of the lands owned
by Pettkus and in the bee-keeping business. Three members writing two opinions
would have found for Becker based on a resulting trust. 8 Dickson J. (as he then was),
writing for the rest of the Court, said that Pettkus held one-half of the beneficial inter-
est in the business and the lands on a constructive trust for Becker. The majority he
led drew attention to the fact that the trial judge found no common intention between
the parties and that this finding was not disturbed by the Ontario Court of Appeal. 9
Dickson J. stated unequivocally that “[t]he principle of unjust enrichment is at the
heart of the constructive trust.”‘ There must be three things to make out a claim for
unjust enrichment: an enrichment; a corresponding deprivation; and an absence of
any juristic reason for the enrichment.’ On the facts, the respondent satisfied the first
two conditions; Pettkus was enriched by the benefit of Ms. Becker’s unpaid labour
while she was said to have received nothing in return. As for the third requirement,
Dickson J. held that
where one person in a relationship tantamount to spousal prejudices herself in
the reasonable expectation of receiving an interest in property and the other
person in the relationship freely accepts benefits conferred by the first person in
circumstances where he knows or ought to have known of that reasonable ex-
pectation, it would be unjust to allow the recipient of the benefit to retain it.’2
37Supra note 28.
36See ibid. at 859, 864. See generally Law of Trusts, supra note 5 at 356.
39See Pettkus, ibid. at 847.
4’bid.
See ibid. at 848.
42Ibid at 849. Contra S. Gardner, “Rethinking Family Property” (1993) 109 L.Q. Rev. 263 at 269-
72, and especially at 271-72:
Mr. Pettkus’ attitude to sharing his property with Miss Becker was consistently nega-
tive. Dickson J. accepts this finding … Is it then tenable for him to assert that Miss
Becker continued to believe that her efforts would be recompensed, and that M.
Pettkus knew or should have known this? Mr. Pettkns’ negative attitude to sharing was
clearly evinced throughout the relationship, and Miss Becker was surely aware of it. In
continuing to work in that awareness she must have been acting, if not out of a spirit of
generosity, then at least with no expectation of recompense. And even if she did har-
bour such an expectation, Mr. Pettkus could say that having made his position suffi-
MCGILL LAW JOURNAL! IREVUEDE DROITDE MCGILL
[Vol. 42
We have seen that the constructive trust has changed significantly since Keech.
The substantive trust has become a response not just to breach of express trust, but
also to breach of fiduciary duty. The remedial constructive trust has emerged only in
the last two decades in Canada as an important method of allocating property fairly
between parties when intimate relationships break down. The courts have also pushed
the development of the remedial constructive trust to impose a unifying principle on
all constructive trusts: the principle of unjust enrichment. We should now address this
last proposition.
C. Unified Constructive Trust
The modem Canadian constructive trust can be characterized by two ideas: there
is only one form of constructive trust and that form of trust is based on the principle
of unjust enrichment. These two ideas find expression in the phrase “remedial con-
structive trust”. That is, the substantive-constructive-trust situations have been sub-
sumed under the principle of unjust enrichment and the remedial constructive trust.
The remedial constructive trust is a unified constructive trust. This appears to be what
Dickson J. meant by his imperative: ‘The principle of unjust enrichment lies at the
heart of the constructive trust.””
In LAC Minerals Ltd. v. International Corona Resources Ltd.,” a majority of the
Supreme Court held that there must be an unjust enrichment to give rise to a con-
structive trust, even where the facts evidence a breach of confidence. In LAC Miner-
als, International Corona Resources Ltd. (“Corona”) owned several mining claims in
northern Ontario. Corona had geological reports indicating that there were extensive
gold deposits in the claims and in the adjoining property (the “Williams property”).
Some of this information was communicated to the public. LAC Minerals Ltd.
(“LAC”) entered into negotiations with Corona with a view to a joint venture. Over
the course of these negotiations, Corona gave LAC information (e.g., details of Co-
rona’s pursuit of the Williams property and more complete assay results) that was not
public knowledge. Corona made an offer to Williams. LAC subsequently made an of-
fer to Williams to acquire the property for itself while it was still negotiating with Co-
rona. Corona learned of LAC’s offer to Williams for the first time when Corona made
a written offer. Williams ultimately accepted LAC’s offer. Negotiations then broke off
and Corona began the action alleging breach of duty and breach of confidence and
claiming a constructive trust over the Williams property. At trial,’ LAC was found li-
able under both heads of claim and the remedy ordered was a constructive trust sub-
ciently clear, he was reasonably unaware of that expectation and reasonably thought
she must have been acting gratuitously.
See also Gardner, ibid. at 274: “There is a strong argument, then, that these two leading decisions
[Pettkus, ibkL and Sorochan v. Sorochan, [1986] 2 S.C.R. 38, 29 D.L.R. (4th) 1], whilst doctrinally
quite satisfactory, are founded on highly dubious findings of fact.”
41 Pettkus, ibid at 847.
“Supra note 9.
45LAC Minerals Ltd v. International Corona Resources Ltd. (1986), 53 O.R. (2d) 737, 25 D.L.R.
(4th) 504 (S.C.), aff’d (1987), 62 O.R. (2d) 1, 44 D.L.R. (4th) 592 (C.A.).
1997]
S. HOEGNER – CONSTRUCTIVE TRUSTS
447
ject to a lien in LAC’s favour for the cost of the improvements and the amount paid to
Williams. There was also to be an accounting to Corona of the profits earned by LAC
on the property.
The Supreme Court unanimously held that there was a breach of confidence. A
majority of the court (Lamer, Sopinka, and McIntyre JJ.) held that there was no
breach of fiduciary duty.” A differently constituted majority (Lamer, La Forest, and
Wilson JJ.) held that the appropriate remedy was a constructive trust.
Unlike the breach-of-fiduciary-duty cases discussed earlier, Corona’s detriment
was important for the remedy question. What counted in Boardman and Reid, for ex-
ample, was the breach of duty and the profiteering because of the breach; any detri-
ment was irrelevant. In LAC Minerals, however, far from being merely a way to cal-
culate damages, unjust enrichment was at the basis of the remedy. La Forest J., in the
majority on the question of remedy, stated:
If it is established that one party, (here Lac), has been enriched by the acquisi-
tion of an asset, the Williams property, that would have, but for the actions of
that party been acquired by the plaintiff, (here Corona), and if the acquisition of
that asset amounts to a breach of duty to the plaintiff, here either a breach of fi-
duciary obligation or a breach of a duty of confidence, what remedy is avail-
able to the party deprived of the benefit? In my view the constructive trust is
one available remedy, and in this case it is the only appropriate remedy.
In my view the facts present in this case make out a restitutionary claim, or
what is the same thing, a claim for unjust enrichment.f7
In other words, the success of a claim for breach of confidence or breach of fiduciary
duty depends on whether the defendant has been unjustly enriched; a breach of duty
without an unjust enrichment is not sufficient. A successful claim must show some
connection between breach of fiduciary duty, unjust enrichment, and the constructive
trust remedy.
In the same year LAC Minerals was decided, the Supreme Court reaffirmed in
Hunter Engineering Co. v. Syncrude’ that Canadian law would recognize only one
form of constructive trust. That case concerned liability for design faults in gearboxes
supplied to a synthetic oil plant, Syncrude. One of the suppliers was a U.S. firm,
Hunter Engineering. Syncrude subsequently contracted with a company (Hunter Ma-
chinery (Canada) Ltd.) that passed itself off as the Canadian subsidiary of Hunter
“Although
the remedy is based on breach of confidence and not breach of fiduciary duty, LAC
Minerals is informative as a breach of fiduciary duty case for two reasons. First, a bare majority of the
court decided that there was no breach of fiduciary duty in this case. Two justices (La Forest and Wil-
son JJ.) of five agreed that there was a breach of fiduciary duty. Both lower courts, moreover, found
that LAC had breached a fiduciary duty to Corona. Second, the Supreme Court would have given the
same remedy if a fiduciary duty had been found (Lac Minerals, supra note 9 at 616 and 618). The
case is included here because it demonstrates the congruence of the substantive and remedial con-
structive trusts. See generally D.W.M. Waters, Case Comment on LAC Minerals Ltd. v. International
Corona Resources Ltd (1990) 69 Can. Bar. Rev. 455 [hereinafter Case Comment on LAC Minerals].
7 LAC Minerals, ibid at 669.
“1 [1989] 1 S.C.R. 426,57 D.L.R. (4th) 321 [hereinafter Hunter cited to S.C.R.].
448
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
[Vol. 42
Engineering. Hunter Engineering discovered
the deception and commenced a
“passing off’ action against Hunter Machinery. Syncrude then set up a trust fund from
which subcontractors were to be paid; the remainder of the trust-fund monies were to
go to the winner of the Hunter litigation.
The part of the judgment that is of interest to the argument being developed deals
with entitlement to the trust fund. In the majority on this point, Dickson C.J. asserted
not only that the remedial constructive trust was the sole constructive trust available,
but also that unjust enrichment could be used to explain the historical instances of the
substantive constructive trust:
The constructive trust has existed for over two hundred years as an equitable
remedy for certain forms of unjust enrichment. In its earliest form, the con-
structive trust was used to provide a remedy to claimants alleging that others
had made profits at their expense. Where the claimant could show the existence
of a fiduciary relationship between the claimant and the person taking advan-
tage of the claimant, the courts were receptive…. In Pettkus v. Becker, [this)
Court moved to an approach more in line with restitutionary principles by ex-
plicitly recognizing constructive trust as one of the remedies for unjust enrich-
ment.’
A plaintiff must therefore demonstrate an unjust enrichment of the defendant in order
to succeed. Dickson C.J. decided in Hunter that the unjust-enrichment claim was not
made out by Hunter Engineering and that the monies should be returned to Syncrude.
In a thoughtful article that appeared in 1988, the year before LAC Minerals and
Hunter were decided by the Supreme Court, Moe Litman stated that
there are two, and possibly three conceptual models of the constructive trust.
The first is the familiar institutional constructive trust … The second is the resti-
tutionary constructive trust which operates as a remedy for unjust enrichment.
The third is the remedial constructive trust which operates as a remedy for
wrongs which are broader in concept than unjust enrichment5
Since 1989, LAC Minerals and Hunter stand for the proposition that there is only one
conceptual model for the Canadian constructive trust: a remedy for unjust enrich-
ment.’
4″/bia. at 471 [emphasis added; references omitted].
” Litman, supra note 29 at 415.
51 Since LAC Minerals and Hunter, at least one member of the Supreme Court has said that the
point is undecided. In Rawluk, McLachlin J., in dissent, stated: “Because the facts in the present case
involve allegations of unjust enrichment (and thus the type of trust used to remedy unjust enrich-
ment), it is not necessary for the purpose of this appeal to decide if other types of constructive trusts
have been abolished” (Rawluk, supra note 5 at 103; see also Madame Justice B.M. McLachlin, “The
Place of Equity and Equitable Doctrines in the Contemporary Common Law World: A Canadian Per-
spective” in D.W.M. Waters, ed., Equity, Fiduciaries and Trusts (Toronto: Carswell, 1993) 37 at 48).
With respect, and notwithstanding McLachlin L’s obiter dicta, the issue was decided the year before
Rawluk: to succeed, a claim for a constructive trust has to be founded on unjust enrichment as a cause
of action.
1997]
S. HOEGNER – CONSTRUCTIVE TRUSTS
The constructive trust is at an important point in its development in Canadian law.
We have seen that the doctrine has changed considerably since its inception in English
common law. In particular, the appearance of the remedial constructive trust has
added a new dimension: instead of being confined to substantive breach-of-duty
cases, the constructive trust is now instrumental in remedying unjust enrichment. But
Canadian courts have not simply continued to develop the remedial constructive trust
alongside its substantive cousin. The courts have used the former to replace the latter,
enshrining the principle of unjust enrichment as a sine qua non for the remedy of
constructive trust. There are problems with this unified conception of the constructive
trust – problems that are not without solutions.
II. The Unified Constructive Trust: Problems and Solutions
Briefly, the “unified” constructive trust cannot apply to the traditional breach-of-
duty cases because the concept of corresponding detriment is limited to detriment by
subtraction; in many of the traditional cases, while there is a wrong, there is no sub-
traction per se from the plaintiff. The concept of unjust enrichment should not, how-
ever, be broadened to include non-subtractive wrongs, since this would import con-
fusion and uncertainty into the doctrine. To preserve the integrity of the analysis in
situations where a constructive trust is warranted, the courts should therefore return to
the separation between substantive and remedial constructive trusts.
To make out a claim in unjust enrichment, the defendant’s benefit must corre-
spond to the plaintiff’s detriment.” A corresponding detriment is what identifies the
plaintiff as the party who can recover from the defendant because of the unjust en-
richment.” At the heart of the concept of corresponding detriment is the idea of sub-
traction.’ The defendant’s enrichment corresponds to something given up by the
plaintiff. A straightforward example is money; where the defendant receives money
unjustly from the plaintiff, the plaintiff can sue for restitution of that money.Y The de-
fendant’s gain is the plaintiff’s loss. Similarly, services conferred by the plaintiff on
the defendant are “subtractions” from the plaintiff; the plaintiff’s (often physical) ef-
fort is expended to do something for the defendant. Once again, the defendant’s gain
is directly linked to the plaintiff’s expense.
In all of the leading Canadian constructive-trust cases since Pettkus, the facts
clearly show that the three elements of unjust enrichment are met. Specifically, in
addition to the injustice that must be present, each case demonstrates a detriment by
subtraction to the plaintiff corresponding to the defendant’s gain. Becker worked long
hours in the operation of her and Pettkus’s bee-keeping business, performed all man-
ner of household services, paid from her own money for things such as rent and food,
and contributed to the purchase of property. Her detriments were subtractions from
5 See Pettkus, supra note 28 at 848; Rathwell v. Rathwell, [1978] 2 S.C.R. 436, 83 D.L.R. (3d) 289;
Litman, supra note 29 at 418-24.
5 3See Birks, supra note 3 at 132.
, See ibid. at 42 for a discussion of “subtraction”.
See e.g. Kelly v. Solari (1841), 9 M. & W. 54, 152 E.R. 24.
450
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
[Vol. 42
her in the form of money payments and services. This detriment resulted in Pettkus’s
enrichment (retention of the business and properties after the breakdown of the rela-
tionship). Similarly, in Sorochan v. Sorochan,” a wife laboured on the farm owned by
her husband for forty-two years, raising their children, providing domestic services,
and often assuming sole responsibility for the farm chores. It seems obvious that these
subtractions from her constituted a detriment and that those detriments resulted in her
husband’s enrichment, since they preserved, maintained and improved the property
owned by the husband.” The detriment requirement was also met in LAC Minerals.
While Corona gave up nothing to LAC directly, LAC used confidential information to
take the Williams property for itself. The court assumed that Corona would have re-
ceived the property but for LAC’s actions, so this interceptive subtraction amounted
to a detriment to Corona resulting in LAC’s corresponding enrichment.
The unjust-enrichment principle cannot, however, accommodate the traditional
substantive-constructive-trust situations because there is no detriment by subtraction
in those cases. In Reid, for example, the criminals bribed the prosecutor. The Crown
lost nothing, at least not in the sense that it paid money to Reid, performed services
for him, or that Reid took a benefit that was certainly or even probably destined for
the Crown; there was no reason for the criminals to pay bribes to the Crown –
it was
Reid specifically who was intended to receive the monies. Reid clearly profited from
the wrong, but there was no detriment by subtraction to the Crown in the case.
The same point can be made about Keech. The trustee took the market lease for
himself, and was therefore enriched. There was, however, no detriment to the benefi-
ciary. In fact, the trustee took the lease only after the lessor had made it clear that he
would not lease to the trust. It was impossible for the beneficiary to suffer a subtrac-
tive detriment; the beneficiary did not have the market lease, and could never possibly
get it. Especially in Keech, therefore, there was no unjust enrichment in the sense of
taking something from the infant. Since there was no detriment by subtraction, unjust
enrichment cannot explain why the constructive trust was imposed in these cases.
This does not dispose of the matter. If wrongs do not fit the definition of detri-
ment, is the definition deficient? Can the traditional cases be accommodated in an ex-
panded notion of unjust enrichment? Some think so. Donovan Waters, for example, is
of this opinion.” He agrees that the only kind of trust available in Canada is the re-
medial constructive trust. 9 In his view, moreover, the traditional constructive-trust fact
scenarios can be explained by this new trust. He discerns in Dickson J.’s judgment in
Pettkus an intention to connect the old substantive and new remedial constructive
trusts via the idea of unjust enrichment: ‘
“6 Supra note 42.
57 See ibid. at 50.
5 See “The Constructive Trust in Evolution”, supra note 29 at 342. See generally D.W.M. Waters,
The Constructive Trust: The Case for a New Approach in English Law (London: Athlone Press,
1964).
‘9 See “The Constructive Trust in Evolution”, ibid.
‘0 See ibiL at 378.
1997]
S. HOEGNER – CONSTRUCTIVE TRUSTS
There is no desire on the part of the courts to oust existing criteria for the de-
termination of unjust enrichment where those criteria exist. Restitution can be
brought about either by the application of existing criteria or alternatively by
the application of the Pettkus v. Becker three elements. If by either of these ap-
proaches unjust enrichment is established on the facts, then the court deter-
mines what is the appropriate remedy.’
Apparently, therefore, there are two ways of determining whether or not there is
an unjust enrichment on particular facts. The first is through the application of the
three-pronged test in Pettkus. The second is through “existing criteria”. What exactly
is meant by “existing criteria” is unclear, but it appears that Waters means the
“injustice” in each of the traditional situations.’ Unjust enrichment, in this view, can
accommodate the breaches of duty in Keech, Boardman, and Reid; the breach of duty
and the profiteering suffice to make the enrichment unjust, without the requirement of
a corresponding detriment.
This view of unjust enrichment is, with respect, unhelpful. I believe that the
definition of unjust enrichment should be anchored to the three-step Pettkus test. The
broader definition of unjust enrichment as comprising only an injustice and an en-
richment is not helpful because it introduces confusion into the constructive-trust
doctrine. Confining unjust enrichment to situations including a corresponding detri-
ment ensures that the legal right is specified in the cause of action. If we say, for in-
stance, that the plaintiff mistakenly paid money, we know that the detriment is what
connects him with the defendant: the defendant’s gain is the plaintiff’s loss. Con-
versely, if we say that the defendant accepted bribes to betray his trust, the wrong
seems to be what connects the two parties. In Reid, there was no connection between
the Crown and the money, except that the money had been earned by the wrong.’
Lumping both types of cases under a single principle makes for a broad cause of ac-
tion –
a cause of action that tells us little by itself. We must have more information:
are we dealing with unjust enrichment because of a wrong, because of a subtraction,
or because of both? The corollary result of such a broad definition of unjust enrich-
ment is that the principle is more amorphous. What “injustice” will give rise to a
claim, for unjust enrichment? The principle should be expressed more precisely to
make it more determinate. Such “specialization'”
in language is to be employed
wherever possible. Here it is possible because, before the “unified” remedial con-
structive trust appeared, both breach of duty and unjust enrichment by subtraction
were recognized as independent causes of action that gave rise to a constructive trust.
To ensure doctrinal clarity in unjust enrichment and the constructive trust, it is
imperative that we confine the principle of unjust enrichment to cases of correspond-
ing detriment. The principle is specific; it refers only to the analytically distinct case
of enrichment by subtraction, as opposed to enrichment by wrongdoing. Litman
rightly emphasizes the importance of assigning causes of action to the conceptually
61 Ibid at 380 [emphasis added]. Compare Hunter, supra note 48 at 471.
62 See “The Constructive Trust in Evolution”, ibiL at 378.
6 See Birks, supra note 3 at 41.
” /bid at42.
452
MCGILL LAW JOURNAL/REVUE DE DROITDE McGILL
[Vol. 42
correct “legal pigeon-hole”.” The same can be said for correctly assigning elements to
particular causes of action. Conceptually distinct elements should be kept apart. The
link between the parties in a subtraction case is conceptually distinct from the link
between the parties in a breach of duty case. In the former case, the plaintiff suffers a
detriment; in the latter, the link is the defendant’s wrongdoing. The cases should
therefore be considered differently, rather than being crammed into a broader defini-
tion of unjust enrichment. It is true that “[l]aw without theme or purpose cannot de-
velop as quickly, clearly and coherently as law which has a raison d’etre.”‘ At the
same time, imposing a theme (“unjust enrichment”) on specific and separate rights is
artificial; such a state of affairs is not conducive to the clarity and coherent develop-
ment of legal doctrine.
Some might consider this to be a concern with form over substance. That is, if we
know what remedy we want, whether we get it with a narrower or broader conception
of unjust enrichment (and, accordingly, with or without a separate wrong-based con-
structive trust) seems to be neither here nor there. An argument about the breadth of a
concept like unjust enrichment, however, is a concern with the substance of the law.
The breadth of a cause of action dictates who can recover. If we say that all construc-
tive trusts are based on unjust enrichment, then recovery depends on how we define
unjust enrichment. If the “injustice” of an action is what counts, then what counts as
an injustice? While the clarity of the cause of action may be a question of form, re-
considering the breadth of the principle of unjust enrichment is surely a question of
substance.
One possible response to the problem of having only one form of constructive
trust is to remove the traditional cases from the doctrine of constructive trust. That is,
if it is true that detriment by subtraction is a prerequisite for a constructive trust, and a
particular cause of action demonstrates no detriment, then it follows that the con-
structive trust has no business addressing that cause of action. The constructive trust,
however, should not be confined to unjust-enrichment-by-subtraction cases, thus ig-
noring the traditional breach-of-trust and fiduciary-duty cases. The fiduciary relation-
ship has emerged as an important way of imposing a high degree of trust, loyalty, and
honesty’ on the fiduciary in appropriate cases. There must be disincentives to keep fi-
duciaries from breaching their duties. The imposition of a constructive trust ensures
that the fiduciary cannot profit from his wrong:
When a bribe [for example] is accepted by a fiduciary in breach of his duty
then he holds that bribe in trust for the person to whom the duty was owed. If
the property representing the bribe decreases in value the fiduciary must pay
the difference between that value and the initial amount of the bribe because he
should not have accepted the bribe or incurred the risk of loss. If the property
65Litman, supra note 29 at 411.
” Ibid at 413.
67 See Oosterhoff & Gillese, supra note 6 at 372 (“Unjust enrichment is a concept of substantive law
which imposes liability upon one person to make restitution to another” [referring to Restatement of
Restitution 1 (1936)]).
6′ See Fridman, supra note 21 at 370-71.
1997]
S. HOEGNER – CONSTRUCTIVE TRUSTS
453
increases in value, the fiduciary is not entitled to any surplus in excess of the
initial value of the bribe because he is not allowed by any means to make a
profit out of a breach of duty.
More importantly, the imposition of the constructive trust protects the beneficiary
from an insolvent fiduciary. If the fiduciary declares bankruptcy, the beneficiary
should be able to get all of his property, or as much of it as possible, from the fiduci-
ary before other creditors are satisfied.7
Our courts should not be loath to award a constructive trust in a breach-of-duty
case with facts similar to Reid, for example. If the jurisprudence is followed faithfully,
however, the courts have some very delicate manoeuvring ahead if they want to base
a constructive trust on unjust enrichment where there is no detriment to one of the
parties. They will have to acknowledge either that the Pettkus test is not the only test
of unjust enrichment, and that unjust enrichment is somehow broader than is presently
thought or, more likely, that something like a breach of duty amounts to a detriment
within the meaning of Pettkus. The first option will reduce the specificity and clarity
” Reid, supra note 20 at 5, Lord Templeman. It is true that money restitution can be used to redress
the breach of duty without the use of a constructive trust; the court could trace the value of the bribes
into particular property and then order that that dollar value be paid out by the defendant. This would
convert the defendant into a mere debtor to the plaintiff, as in Lister, supra note 23.
There are two problems with this approach. First, the equitable doctrine of tracing would seem to
be available only where there is a trust present. Second, it may be convenient in the appropriate case
to simply convey the property itself (instead of having the property liquidated and then the proceeds
divided); this was the case in LAC Minerals, supra note 9, in which Corona wanted the gold mine and
not a money payment from LAC. A constructive trust can obtain this result, but money restitution
cannot
This reasoning can also apply to unjust enrichment by subtraction. That is, we could just as eas-
ily say that the constructive trust is unavailable in unjust enrichment by subtraction cases because
money restitution is available. I believe, for reasons already given, that such an approach is unsatis-
factory.
70 The Bankruptcy Act, R.S.C. 1985, c. B-3, s. 67(a) declares: “The property of a bankrupt divisible
among his creditors shall not comprise property held by the bankrupt in trust for any other person …’
It is by no means clear, however, that the constructive trust is a “trust” for the purposes of this section.
In British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24, 59 D.L.R. (4th) 726
[hereinafter Henfrey cited to S.C.R.], the court was concerned with whether a statutorily-deemed trust
was a trust for the purposes of this section (then s. 47(a) of the Bankruptcy Act, R.S.C. 1970, c. B-3).
that allowing the withdrawal from property of such a trust
The majority held that it was not a trust-
under a federal statute would be an infringement of the federal government’s exclusive jurisdiction
over bankruptcy and insolvency under s. 91(21) of the Constitution Act, 1867 (U.K.), 30 & 31 Vict.,
c. 3. In the course of her judgment, McLachlin J. said that the provision in the Bankruptcy Act is
“confined to trusts arising under general principles of law” (Henfrey, ibid. at 34). Before Henfrey, it
was held that the remedial constructive trust did not count as a trust within the meaning of s. 67(a)
(see Bedard v. Schell, [1987] 4 W.W.R. 699, 59 Sask. R. 71 (Sask. Q.B.)). Since Henfrey, one lower
court judge has assumed, in obiter dicta, that the constructive trust does count as a trust for determin-
ing property of the bankrupt (see Abraham v. Coopers & Lybrand Ltd. (1993), 13 O.R. (3d) 649, 20
C.B.R. (3d) 257 (Gen. Div.), Wilson J.).
I conclude on this point that it is entirely possible that a constructive trust award will result in the
withdrawal of the beneficiary’s property from the defendant’s pool of property when the defendant is
a bankrupt.
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
[Vol. 42
of the principle by moving us to a higher level of generality. The second option will
simply distort the principle outright, something which is to be avoided in all areas of
the law.
A third option is to retain the substantive constructive trust. That is, we should re-
cast the constructive-trust doctrine in Canada to recognize that this remedy can be ei-
ther substantive or remedial or both in character. As a substantive institution, it can be
applied where there is no detriment by subtraction. As a remedial device, it can con-
tinue to do the important work of remedying unjust enrichment in both the family-
and commercial-law contexts. It is also possible, as the minority found in LAC Min-
erals, that the constructive trust can arise from both a breach of fiduciary duty and an
unjust enrichment occurring together.7′
Reintroducing the substantive constructive trust will preserve the integrity of the
constructive-trust analysis in both the remedial and substantive cases. Instead of using
an overly general or even distorted principle of unjust enrichment, we will be able to
link more clearly the remedy with the cause of action. In cases without detriment to
one party, the substantive constructive trust will match the facts with the juridical re-
sponse: the constructive trust is associated with a breach of duty. As a corollary, limit-
ing the remedial constructive trust to detriment by subtraction makes unjust enrich-
ment more meaningful. That is, if we say that unjust enrichment is at issue, we do not
have to ask whether we mean unjust enrichment by subtraction or unjust enrichment
through breach of duty: we know immediately that the issue is enrichment, corre-
sponding detriment, and lack ofjuristic reason.
Renewed use of the substantive trust should also allow for a clear path of expan-
sion in the scope of the constructive trust. The categories of fiduciaries, for example,
are never closed.’ Where the circumstances warrant, the courts will find a fiduciary
relationship. The substantive constructive trust, attached to breach of duty, has room
to grow. I do not mean to endorse an expansion in the substantive-constructive-trust
doctrine itself, such as having the constructive trust become available to redress fraud.
My point is only that since the constructive trust is available when there is a breach of
fiduciary duty, and since the categories of fiduciary duty are still open, the substantive
constructive trust can potentially apply to new and different facts so long as those
facts amount to breach of a fiduciary relationship. Such growth could be accommo-
dated in an expanded remedial constructive trust but, again, only with the added cost
of an increasingly distorted or non-specific notion of detriment. Re-adopting the sub-
stantive constructive trust can, by contrast, preserve the integrity of the analysis in all
of the constructive-trust cases. Where there is a breach of some duty in a new rela-
tionship that amounts to a breach of fiduciary duty, the substantive constructive trust
can focus on the link between the parties to the cause of action in a clear and logical
7′ Litman, supra note 29 at 417, puts it this way: “[Tihough not all cases in which improper profits
are earned by fiduciaries can be viewed as giving rise to an unjust enrichment constructive trust, in
some instances this is possible.”
72 See Guerin v. R., [1984] 2 S.C.R. 335, 13 D.L.R. (4th) 321; Fridman, supra note 21 at 369; Case
Comment on LAC Minerals, supra note 46 at 455-56.
1997]
S. HOEGNER – CONSTRUCTIVE TRUSTS
fashion. Unjust enrichment simply would not apply; it is the wrong committed that
would give rise to the remedy.
It is true that returning to the distinction between substantive and remedial con-
structive trusts means giving up the theoretical elegance of grouping constructive
trusts under one “unifying theme”. ‘ Square pegs should not be knocked into round
holes, however.’ The issue is balance; we have to decide between two competing ob-
jectives. I submit that the law should favour clarity and logic over theoretical tidiness.
Conclusion
The Canadian constructive trust has been employed as an equitable response both
to breaches of duty and, more recently, to unjust enrichment. The courts chose to
unify the different causes of action giving rise to a constructive trust under the prin-
ciple of unjust enrichment. If constructive-trust doctrine is to become both clear and
logical, I believe that the theory of the unified constructive trust needs to be reconsid-
ered. Canadian courts should now take the opportunity to step back and re-examine
the constructive trust to sort out exactly which causes of action are being remedied in
different cases. I believe that they will discover that the constructive trust can be im-
posed for conceptually different reasons, namely as a response to unjust enrichment
by subtraction or as a remedy for breach of trust or fiduciary duty. This categorization
of legal rights is achieved by returning to the distinction between substantive and re-
medial constructive trusts. Re-asserting this distinction will promote the clarity that is
needed in the doctrine. Choices – about whether to continue on the present course or
to start on a new one – will inevitably be made by the courts. If doctrinal certainty
and logic are valued by the courts, then I believe that the argument for striking out on
a new path in the area of constructive trusts is persuasive.
“Litman, supra note 29 at 416.
7,Patrick Parkinson uses this metaphor to refer to problems in applying unjust enrichment to fam-
ily-law cases (see P Parkinson, “Beyond Pettkus v. Becker. Quantifying Relief for Unjust Enrich-
ment’ (1993) 43 U.T.L.J. 217 at 224).
