306440 Ontario Ltd. v. 782127 Ontario Ltd.

• Jurisdiction: Ontario
• Court: Court of Appeal (Ontario)
• Judge: Doherty, Simmons and Tulloch, JJ.A.
• Citation: (2014), 324 O.A.C. 21 (CA),2014 ONCA 548
• Date: 20 May 2014
• Subject Matter: TRUSTS

306440 Ont. v. 782127 Ont. (2014), 324 O.A.C. 21 (CA)

MLB headnote and full text

Temp. Cite: [2014] O.A.C. TBEd. JL.032

306440 Ontario Ltd. (applicant/respondent) v. 782127 Ontario Ltd. o/a Alrange Container Services (respondent)

(C57856; 2014 ONCA 548)

Indexed As: 306440 Ontario Ltd. v. 782127 Ontario Ltd.

Ontario Court of Appeal

Doherty, Simmons and Tulloch, JJ.A.

July 18, 2014.

Summary:

This litigation over the distribution of a bankrupt's estate pitted the secured claim of the lender, who financed the operation of the failed business, against the claims of an unsecured business creditor. The business creditor asserted a constructive trust over certain funds held by the Receiver.

The Ontario Superior Court declined to impose a constructive trust. The business creditor appealed.

The Ontario Court of Appeal allowed the appeal to the limited extent of imposing a constructive trust in favour of the business creditor over $27,244 held by the Receiver. The appeal was otherwise dismissed.

Trusts - Topic 2310

Constructive trusts - Circumstances when not imposed - This litigation over the distribution of a bankrupt's estate pitted the secured claim of the lender, who financed the operation of the failed business, against the claims of an unsecured business creditor - The business creditor asserted a constructive trust over certain funds held by the Receiver - The constructive trust claim relied on what had been called the "swollen assets" theory - The business creditor argued that the bankrupt was unjustly enriched by its sale of property owned by the business creditor - The business creditor further argued that but for the funds these unauthorized sales generated and the bankrupt's use of the proceeds of those sales to maintain its day-to-day operations, the bankrupt's business would have failed much earlier and would not have generated some of the accounts receivable that were ultimately collected by the Receiver and now formed part of the funds awaiting distribution in the bankruptcy proceeding - The business creditor claimed a constructive trust over those funds in an amount equal to the proceeds of the unauthorized sales of its property - The motion judge declined to impose a constructive trust - First, the motion judge held that there was no connection between the asset over which the business creditor sought a constructive trust, that is, part of the funds held by the Receiver, and the proceeds from the sales - Second, the legitimate intervening interest of the secured creditor would render the imposition of a constructive trust in favour of the business creditor unjust - The business creditor appealed - The Ontario Court of Appeal allowed the appeal to the limited extent of imposing a constructive trust in favour of the business creditor over $27,244 held by the Receiver - The appeal was otherwise dismissed.

Trusts - Topic 2346

Constructive trusts - Basis for imposition - Unjust enrichment - [See Trusts - Topic 2310] .

Cases Noticed:

Soulos v. Korkontzilas et al., [1997] 2 S.C.R. 217; 212 N.R. 1; 100 O.A.C. 241, refd to. [para. 15].

Garland v. Consumers' Gas Co., [2004] 1 S.C.R. 629; 319 N.R. 38; 186 O.A.C. 128; 2004 SCC 25, refd to. [para. 19].

Director of Real Estate and Business Brokers v. NRS Mississauga Inc. et al. (2003), 170 O.A.C. 259; 64 O.R.(3d) 97 (C.A.), leave to appeal refused (2003), 327 N.R. 393 (S.C.C.), refd to. [para. 21].

Kerr v. Baranow, [2011] 1 S.C.R. 269; 411 N.R. 200; 300 B.C.A.C. 1; 509 W.A.C. 1; 274 O.A.C. 1; 2011 SCC 10, refd to. [para. 22].

Sorochan v. Sorochan, [1986] 2 S.C.R. 38; 69 N.R. 81; 74 A.R. 67, refd to. [para. 22].

Peter v. Beblow, [1993] 1 S.C.R. 980; 150 N.R. 1; 23 B.C.A.C. 81; 39 W.A.C. 81, refd to. [para. 23].

International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57, refd to. [para. 23].

Rawluk v. Rawluk, [1990] 1 S.C.R. 70; 103 N.R. 321; 38 O.A.C. 81, refd to. [para. 28, footnote 3].

DSLC Capital Corp. v. Credifinance Securities Ltd. et al. (2011), 277 O.A.C. 377; 2011 ONCA 160, refd to. [para. 30].

Ladner v. Wolfson et al. (2011), 310 B.C.A.C. 225; 526 W.A.C. 225; 24 B.C.L.R.(5th) 43; 2011 BCCA 370, refd to. [para. 30].

Michelin Tires (Canada) Ltd. v. Minister of National Revenue (Customs and Excise), [2001] 3 F.C. 552; 271 N.R. 183; 2001 FCA 145, refd to. [para. 30].

Authors and Works Noticed:

McCamus, John D., The Law of Restitution (2013) (Looseleaf), paras. 5:200 [para. 24]; 7:400 [para. 38].

Paciocco, David M., The Remedial Constructive Trust: A Principled Basis for Priorities Over Creditors (1989), 68 Can. Bar Rev. 315, pp. 332, 333 [para. 17]; 333 [paras. 26, 27].

Counsel:

M. Gordon Hearn, for the appellant, Textainer Equipment Management (US) Ltd.;

Dennis Van Sickle, for the respondent, 306440 Ontario Ltd.;

John N. Birch, for the Receiver.

This appeal was heard on May 20, 2014, by Doherty, Simmons and Tulloch, JJ.A., of the Ontario Court of Appeal. The following judgment of the Court of Appeal was delivered by Doherty, J.A., on July 18, 2014.