Tracy et al. v. Instaloans Financial Solutions Centres (B.C.) Ltd. et al., (2010) 290 B.C.A.C. 193 (CA)

• Judge: Newbury, Neilson and Groberman, JJ.A.
• Court: Court of Appeal (British Columbia)
• Case Date: Friday May 21, 2010
• Jurisdiction: British Columbia
• Citations: (2010), 290 B.C.A.C. 193 (CA);2010 BCCA 357

Tracy v. Instaloans Financial (2010), 290 B.C.A.C. 193 (CA);

    491 W.A.C. 193

MLB headnote and full text

Temp. Cite: [2010] B.C.A.C. TBEd. JL.035

Gracia Tracy (Represented Ad Litem by Michelle Grant) and Lexine Phillips (respondents/plaintiffs) v. Instaloans Financial Solutions Centres (B.C.) Ltd., Instaloans Financial Solution Centres (Vernon) Ltd., 864556 Alberta Ltd. (formerly known as Instaloans Financial Solution Centres (Mgmt.) Ltd.), 803759 Alberta Ltd. (formerly known as Instaloans Financial Solution Centres (Kelowna) Ltd.), 853604 Alberta Ltd. (formerly known as Instaloans Financial Solution Centres (Payroll) Ltd.), 1070056 Alberta Ltd. (formerly known as Instaloans (B.C.) Ltd.), Image (Topco) Enterprises Inc., Image (Topco) Enterprises Limited Partnership, Tim Latimer and Marc Arcand (appellants/defendants)

(CA037366; 2010 BCCA 357)

Indexed As: Tracy et al. v. Instaloans Financial Solutions Centres (B.C.) Ltd. et al.

British Columbia Court of Appeal

Newbury, Neilson and Groberman, JJ.A.

July 21, 2010.

Summary:

In 1996, Latimer and Arcand started a "payday loans" business, lending money at a cost greater than 60% per year, in conflict with s. 347 of the Criminal Code. They operated through a broad corporate structure. In 2005, they sold the business for $35 million. Shortly after, this class action was commenced against the companies and against their principals (Latimer and Arcand), to recover amounts paid by borrowers in British Columbia from December 1998 to April 2005, that exceeded 60%.

The British Columbia Supreme Court certified a number of common issues and addressed them on a summary trial. In a decision reported at [2008] B.C.T.C. Uned. C19; 2008 BCSC 669, the court held that the companies and the two principals had been unjustly enriched and that the corporate structure did not shield Latimer and Arcand from liability. The companies and the two principals were also liable in tort on the basis they had conspired to injure the borrowers. The defendants appealed. Before the appeal was heard, the plaintiffs made at least two applications seeking information and documents relating to the defendants' respective assets.

The British Columbia Supreme Court required further submissions "with respect to the remedy for unjust enrichment". The plaintiffs applied to have common issues (g) and (j), relating to the appropriate remedy, determined. The court, in a decision reported at [2009] B.C.T.C. Uned. 1036; 2009 BCSC 1036 (the remedy order) concluded that the plaintiffs were entitled to a remedy in the form of a constructive trust and in the form of damages under the Trades Practices Act or the Business Practices and Consumer Protection Act; and that the plaintiffs were entitled to refrain from making an election until they were able to gauge which remedy was effective.

The British Columbia Court of Appeal, in a decision reported at (2009), 268 B.C.A.C. 83;

452 W.A.C. 83; 2009 BCCA 110, dismissed the appeal of the main judgment. The challenge was largely factual in nature and there was, in any event, no basis for intervention, subject to the following clarification: the determination whether Latimer, Arcand, and the companies were liable in tort did not need to be decided. Later, the plaintiffs appeared before the court in Chambers seeking the right to pursue further discovery of the defendants. In a decision reported at [2009] B.C.T.C. Uned. 1699; 2009 BCSC 1699, the court ordered the defendants to answer various interrogatories and produce various documents relating to their assets and the individual defendants to submit to discovery. The defendants now appealed the remedy order of July 29, 2009. They advanced four grounds of appeal.

The British Columbia Court of Appeal allowed the appeal only to the extent of refining the terms of the order appealed from, and revised the operative portions of the remedy order.

Equity - Topic 1006

Equitable relief - General - Accounting of profits - The British Columbia Court of Appeal stated that "[h]istorically, accounting was available both at law and in Equity to enforce personal monetary obligations (as opposed to effecting compensation for breach of such obligations). Equitable accounting normally secured the performance of equitable duties ... [I]n the old language of Equity, a defendant was said to be 'liable to account as a constructive trustee' for profits earned from property of the beneficiary. Gradually, the common law remedy was superseded by the more flexible equitable remedy and the latter is now used for restitutionary purposes" - See paragraph 50.

Equity - Topic 1006

Equitable relief - General - Accounting of profits - A trial judge in this class action proceeding required further submissions "with respect to the remedy for unjust enrichment" - The plaintiffs applied to have common issues relating to the appropriate remedy determined - The British Columbia Court of Appeal agreed with the trial judge that an order for an accounting was appropriate in this case - An accounting was an obvious remedial measure where restitution for unjust enrichment was ordered - The court assumed that since the accounting ordered in this instance extended to profits earned on the "benefit" received by the defendants, it was intended as ancillary to the constructive trust - See paragraph 50.

Equity - Topic 1007

Equitable relief - General - Tracing - [See eighth Restitution - Topic 123 ].

Equity - Topic 3907.1

Fiduciary or confidential relationships - Breach of confidence - Remedies - Constructive trust - [See eighth Restitution - Topic 123 ].

Interest - Topic 910

Equity - Unjust enrichment - Rate of interest - [See eighth Restitution - Topic 123 ].

Restitution - Topic 123

Unjust enrichment - Remedies - Constructive trust - In this class action, the hearing of the outstanding common issues related to the remedy of unjust enrichment - The trial judge considered the issue of whether or not the defendants held the benefits of the "payday loans" business in trust for the plaintiff class members, and if so, were the defendants liable to account - She concluded that the plaintiffs were entitled to a remedy in the form of a constructive trust - The defendants' first ground of appeal was that the trial judge did not properly apply "the test" for granting the remedy of a constructive trust - The British Columbia Court of Appeal stated that "[t]his test, or more properly, these tests, have been evolving over the past few decades as the doctrine of unjust enrichment has also evolved ... More recently, the constructive trust has been applied to impose a 'remedial obligation' designed to ensure that wrongdoers may not retain benefits received by them contrary to good conscience to the detriment of another. Whereas the underlying principle had traditionally been that the claimant was and had always been the beneficial owner of the trust property ... this is not the case where the constructive trust is used to effect restitution for unjust enrichment" - See paragraph 21.

Restitution - Topic 123

Unjust enrichment - Remedies - Constructive trust - In the context of a class action against a payday loans business, the British Columbia Court of Appeal considered "the three leading cases" in Canada, setting out the tests for granting the remedy of a constructive trust - Two cases were in the family law area; the third was in the commercial area - The defendants in the case at bar relied on the absence of factors that would make a trust remedy unjust (one of the "pre-requisites" specified in the family law cases), to argue that the imposition of a constructive trust would cause significant prejudice to third parties - The court agreed with the trial judge that the argument was answered by the fact that the beneficiary of a constructive trust "cannot assert his or her proprietary interest against a person who came into possession of the property (here, funds) bona fide and for value" - See paragraphs 22 to 28.

Restitution - Topic 123

Unjust enrichment - Remedies - Constructive trust - A class action against a payday loans business, started by two principals and operated through companies, sought the recovery of amounts paid by borrowers in British Columbia that exceeded the cost permitted under s. 347 of the Criminal Code - The case was one of unjust enrichment - In referring to the constructive trust as a "discretionary" or "extraordinary" remedy, the defendants raised the role of "the equities" or "good conscience" generally in determining the appropriateness of a constructive trust - The British Columbia Court of Appeal stated that "[n]otwithstanding the fact that equities of this kind were not referred to expressly in the formulation of 'the test' for a constructive trust remedy in Pettkus or Peter v. Beblow, I doubt the Supreme Court intended to jettison a consideration of the 'equities' or 'good commercial conscience' in cases of unjust enrichment, whether in or outside the family law area" - See paragraphs 28 and 29.

Restitution - Topic 123

Unjust enrichment - Remedies - Constructive trust - This class action was commenced against the defendant companies and their principals, to recover amounts paid by borrowers in British Columbia between 1998 and 2005, in excess of the criminal interest rate - The trial judge found that there was a sufficient connection to ground a finding of unjust enrichment against all the defendants - The defendants' primary argument was that the finding did not satisfy the imposition of the remedy of a constructive trust; i.e., that the "threshold" requirement, namely, a nexus between the unlawful finance charges and the property (here, funds) was non-existent - The British Columbia Court of Appeal considered the "proprietary link" in this case - It was clear from the authorities that funds, or accounts, were a proper subject for a constructive trust - However, whether the trial judge's finding was also sufficient to establish a connection that met the criteria for the imposition of a constructive trust vis-à-vis the defendants other than those defendant companies that had carried on the payday loan business directly with customers in British Columbia, was "doubtful" - See paragraphs 30 to 33.

Restitution - Topic 123

Unjust enrichment - Remedies - Constructive trust - In the case at bar, the defendants were enriched by the collection of illegal interest from the plaintiffs - In the defendants' analysis, the only "property" at issue in this case was money and therefore a monetary judgment would be equal to (and therefore adequate to make restitution for) the fees and charges illegally paid by the plaintiffs to the defendants - The trial judge was said to have erroneously assumed that the sole test, in determining whether a constructive trust should be imposed, was whether the plaintiffs were likely to be able to collect on a money judgment - The British Columbia Court of Appeal did not agree - First, "collectability" referred not only to whether the defendants had the funds to pay a money judgment, but also to the difficulty the plaintiffs would have in enforcing a monetary judgment where assets might have passed into the hands of unknown persons - Second, "collectability" or "solvency" was a consideration properly relevant to the granting of a constructive trust - See paragraphs 34 and 35.

Restitution - Topic 123

Unjust enrichment - Remedies - Constructive trust - In the case at bar, the defendants were enriched by the collection of illegal interest from the plaintiffs - The British Columbia Court of Appeal discussed the interests of third parties - "Some commentators have questioned the fairness of providing the claimant in an unjust enrichment case with a proprietary interest that will prevail over the interests of ordinary creditors ... In the present case, the analysis is perhaps less difficult, assuming that the granting of a constructive trust falls under the 'broad umbrella of good conscience' ... Here the plaintiffs assert a trust in order to pursue the very funds ... they paid to the defendants and the defendants received in contravention of the Criminal Code. Their claims are therefore qualitatively different from those of general creditors or other persons dealing with the defendants in the normal course. The unjust enrichment here is not only a private wrong, but arises from a criminal offence in respect of which it is in the public interest that neither the wrongdoers nor their ordinary creditors be permitted to retain the benefit" - See paragraphs 37 and 38.

Restitution - Topic 123

Unjust enrichment - Remedies - Constructive trust - A trial judge in a class action proceeding approved of a constructive trust as a remedy for unjust enrichment - A ground of appeal asserted by the defendants was that the trial judge effectively applied a reverse onus in determining the appropriateness of a constructive trust - The British Columbia Court of Appeal stated that the trial judge simply recognized that it lay within the defendants' power to adduce evidence that might forestall the inference arising from what evidence the trial judge did have - The plaintiffs had already adduced evidence from which the inadequacy of a monetary judgment could be inferred - The trial judge was simply giving the defendants another opportunity to counter that evidence - Since they failed to do so, the obvious inference was drawn - See paragraphs 39 and 40.

Restitution - Topic 123

Unjust enrichment - Remedies - Constructive trust - A class action against a payday loans business, started by two principals and operated through companies, sought the recovery of amounts paid by borrowers in British Columbia (the plaintiffs) that exceeded the cost permitted under s. 347 of the Criminal Code - The trial judge found that the defendants were enriched by the collection of illegal interest from the plaintiffs - The British Columbia Court of Appeal concluded that the trial judge considered the correct legal "tests" in approving a constructive trust as a restitutionary remedy for the defendants' unjust enrichment - However, "it is only if the Unlawful Finance Charges or their proceeds are identifiable in the hands of defendants farther up the transactional chain than the Storefront Lenders [those defendant companies that had carried on the payday loan business directly with customers in British Columbia] that a constructive trust may be asserted against those defendants. The process by which the plaintiffs may 'follow' the Charges up the chain is tracing ... [T]he right which the plaintiffs are entitled to trace in this case is the constructive trust, an equitable property right ... It is not necessary, as was once argued, to demonstrate a pre-existing fiduciary relationship" - Should the plaintiffs succeed in identifying the charges or their proceeds farther up the chain, they would be entitled to elect a proprietary remedy in the form of a constructive trust - See paragraphs 41 to 43.

Restitution - Topic 123

Unjust enrichment - Remedies - Constructive trust - In this class action proceeding, a trial judge found the defendants liable on the basis they had been unjustly enriched, and liable in tort on the basis they had conspired to injure the plaintiffs - The plaintiffs applied to have common issues relating to the appropriate remedy determined - The trial judge concluded that the plaintiffs were entitled to a remedy in the form of a constructive trust and in the form of damages under the Trades Practices Act or the Business Practices and Consumer Protection Act - The defendants submitted that the remedy order contravened the principle that a plaintiff could obtain a judgment for damages or restitution in the form of a proprietary remedy, but not both - The British Columbia Court of Appeal stated that the trial judge's reasons indicated that such was not her intention - She reiterated that although the defendants could not receive double recovery, they were entitled to refrain from making an election until they were able to "gauge which remedy is effective" - Unfortunately, this was not reflected in the order - There was no error in the trial judge's conclusion that the plaintiffs need not elect until they were able to make an informed choice - As long as the plaintiffs made their election before final judgment was issued (the remedy order was not a final order), the defendants could have no objection - See paragraphs 44 to 49.

Restitution - Topic 124

Unjust enrichment - Remedies - Damages - [See fifth and ninth Restitution - Topic 123 ].

Restitution - Topic 3701

Benefit acquired by defendant from third party - Recovery of money - General - [See second and sixth Restitution - Topic 123 ].

Trusts - Topic 2305

Constructive trusts - General principles - Nature of constructive trust - [See first Restitution - Topic 123 ].

Trusts - Topic 2346

Constructive trusts - Basis for imposition - Unjust enrichment - [See all Restitution - Topic 123 ].

Cases Noticed:

Murdoch v. Murdoch, [1975] 1 S.C.R. 423, refd to. [para. 2].

Kilroy v. A OK Payday Loans Inc., [2006] B.C.T.C. Uned. D01; 273 D.L.R.(4th) 255; 2006 BCSC 1213, affd. (2007), 240 B.C.A.C. 151; 398 W.A.C. 151; 278 D.L.R.(4th) 193; 2007 BCCA 231, consd. [para. 5].

Soulos v. Korkontzilas et al., [1997] 2 S.C.R. 217; 212 N.R. 1; 100 O.A.C. 241, consd. [para. 5].

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. 6].

Peel (Regional Municipality) v. Ontario, [1992] 3 S.C.R. 762; 144 N.R. 1; 59 O.A.C. 81, refd to. [para. 10].

International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57, consd. [para. 11].

Western Trust Co. v. Wah Sing (1920), 56 D.L.R. 584 (Sask. C.A.), refd to. [para. 21].

Becker v. Pettkus, [1980] 2 S.C.R. 834; 34 N.R. 384, consd. [para. 22].

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

Murray v. Roty (1983), 147 D.L.R.(3d) 438 (Ont. C.A.), refd to. [para. 23].

Keech v. Sandford (1726), 25 E.R. 223 (Ch. Div.), refd to. [para. 24].

McDonald v. McDonald (1892), 21 S.C.R. 201, refd to. [para. 24].

Canadian Aero Service Ltd. v. O'Malley et al., [1974] S.C.R. 592, refd to. [para. 24].

Ellingsen (Bankrupt), Re (2000), 142 B.C.A.C. 26; 233 W.A.C. 26; 2000 BCCA 458, consd. [para. 28].

Rawluk v. Rawluk, [1990] 1 S.C.R. 70; 103 N.R. 321; 38 O.A.C. 81, consd. [para. 29].

Waxman et al. v. Waxman et al., [2002] O.T.C. 443; 25 B.L.R.(3d) 1 (Sup. Ct.), affd. (2004), 186 O.A.C. 201 (C.A.), refd to. [para. 31].

Ruwenzori Enterprises Ltd. et al. v. Walji et al., [2004] B.C.T.C. 741; 2004 BCSC 741, affd. (2006), 231 B.C.A.C. 166; 381 W.A.C. 166; 2006 BCCA 448, refd to. [para. 31].

Foskett et al. v. McKeown et al., [2001] A.C. 102; 257 N.R. 294 (H.L.), refd to. [para. 31].

Hallett Estate, Re; Knatchbull v. Hallett (1880), 13 Ch. D. 696 (C.A.), refd to. [para. 31].

Barnabe v. Touhey (1995), 26 O.R.(3d) 477 (C.A.), refd to. [para. 36].

Muschinski v. Dodds, [1985] HCA 78; 60 A.L.J.R. 52 (Aust. H.C.), refd to. [para. 36].

Boscawen v. Bajwa, [1995] 4 All E.R. 769 (C.A.), refd to. [para. 41].

Citadel General Life Assurance Co. et al. v. Lloyds Bank of Canada et al., [1997] 3 S.C.R. 805; 219 N.R. 323; 206 A.R. 321; 156 W.A.C. 321, refd to. [para. 41].

McTaggart v. Boffo (1975), 64 D.L.R.(3d) 441 (Ont. H.C.), refd to. [para. 42].

Island Records Ltd. v. Tring Int'l. PLC (1996), 1 W.L.R. 1256 (Ch. Div.), refd to. [para. 45].

United Australia Ltd. v. Barclays Bank Ltd., [1941] A.C. 1 (H.L.), refd to. [para. 45].

Capacious Investments Ltd. v. Tang, [1996] 1 A.C. 514; 192 N.R. 138 (P.C.), refd to. [para. 45].

Sandell Developments Ltd. v. Boivin (1986), 2 B.C.L.R.(2d) 261 (S.C.), refd to. [para. 45].

Authors and Works Noticed:

Litman, M.M., The Emergence of Unjust Enrichment as a Cause of Action and the Remedy of Constructive Trust (1988), 26 Alta. L. Rev. 407, p. 454 [para. 23].

Maddaugh, Peter D., and McCamus, John D., The Law of Restitution (Looseleaf), c. 6, c. 7 [para. 41]; pp. 5-30 to 5-32 [para. 36]; 7-27 to 7-28 [para. 43]; para. 5.44 [para. 50].

Paciocco, David M., The Remedial Constructive Trust: A Principled Basis for Priorities over Creditors (1989), 68 Can. Bar Rev. 315, p. 337 [para. 37].

Rotman, Leonard I., Deconstructing the Constructive Trust (1999), 3 Alta. L. Rev. 133, pp. 165 to 170 [para. 37].

Smith, Lionel D., The Law of Tracing (1997), generally [para. 41]; c. 8 [para. 42]; p. 357 [para. 43].

Waters, Donovan W.M., The Law of Trusts in Canada (3rd Ed. 2005), pp. 469 [para. 5]; 473, 474 [para. 21]; 476 [para. 50]; 487 [para. 43].

Counsel:

R.G. McLennan and S.W. Chambers, for the appellants;

P.R. Bennett and M.W. Mounteer, for the respondents.

This appeal was heard on May 21, 2010, at Vancouver, British Columbia, by Newbury, Neilson and Groberman, JJ.A., of the British Columbia Court of Appeal. Newbury, J.A., delivered the following written reasons for judgment of the Court, dated July 21, 2010.