A Very Long Limitation Period for Unjust Enrichment Claims: McConnell v Huxtable

Statutes of limitations are intended to add clarity to the litigation process but, ironically, sometimes have the opposite effect. Ontario’s Limitations Act, 2002, SO 2002, c 24, Sch B [Limitations Act], was meant to reduce the multitude of different limitation periods with the aim of having a two-year limitation on most types of actions. However, the Limitations Act remains riddled with exceptions — most notably, the limitation periods set out in a long list of other statutes are allowed to prevail over those in the Limitations Act.

The case of McConnell v Huxtable, 2014 ONCA 86 [McConnell], reveals one more unexpected gap in the limitations law. This case will be of particular significance for individuals in a common law relationship, because these individuals often bring claims for unjust enrichment. The Ontario Court of Appeal has decided that the limitation period for such claims when they involve real property is not the standard two years but is, instead, ten years. Such a claim could thus come as an unpleasant surprise long after a relationship is over and all but forgotten.

The Growing Importance of Unjust Enrichment Claims in Family Law

Ontario’s Family Law Act, RSO 1990, c F.3 [Family Law Act], has a well-defined set of rules for the sharing of property on marriage breakdown. The Act expresses the noble sentiment that “inherent in the marital relationship there is equal contribution, whether financial or otherwise … entitling each spouse to the equalization of net family properties” (s 5(7)).

This provision protects married people, but it does not apply to the millions of people who cohabit without getting a marriage licence. In most provinces, common law spouses are still excluded from family property equalization legislation. This exclusion can create great unfairness, particularly for women. It has happened, for example, that a couple has worked together for decades in building up a business or a farm while the “couple’s” property has remained legally registered in the name of only one partner. Most often, the property has been registered in the name of the male partner within a heterosexual relationship. 

To overcome the worst instances of unfairness, courts adapted the old equitable rules of unjust enrichment and constructive trust. This began with Pettkus v Becker, [1980] 2 SCR 834, and was most recently affirmed and elaborated in Kerr v Baranow, [2011] 1 SCR 269. Where A has been unjustly enriched and B has been deprived without any good legal reason (because the property that A legally owns has increased in value due to the unremunerated work of B), the court can declare that the party without legal ownership has a beneficial interest in the property.

The Reasoning of the Court of Appeal on the Limitation Period

Judith McConnell and Brian Huxtable were in a common law relationship from about 1994 to 2007. During the course of the relationship Mr. Huxtable bought a house, which was registered in his name only. About five years after the relationship ended, Ms. McConnell learned that the house was for sale. She filed an application stating that she was entitled to a remedial constructive trust interest in the property due to the work she had devoted to helping to renovate it.

Ms. McConnell brought her application well past the normal two-year limitation period, and Mr. Huxtable argued that her claim should be dismissed for that reason. The motions judge ruled otherwise, and that ruling has now been affirmed by the Court of Appeal.

As Rosenberg JA noted, writing for a unanimous Court of Appeal, one of the exceptions to the normal two-year limitation period that remains in the Limitations Act has to do with real property:

While the Limitations Act, 2002 seeks to enact a comprehensive scheme for limitation periods, s. 2(1)(a) expressly exempts “proceedings to which the Real Property Limitations Act applies.” The motion judge found that the respondent’s claim came within s. 4 of the Real Property Limitations Act, which provides as follows: No person shall make an entry or distress, or bring an action to recover any land or rent, but within ten years next after the time at which the right to make such entry or distress, or to bring such action, first accrued…  (McConnell, para 7).

When the Legislature decided to overhaul the law of limitations in this province, it decided to leave the law as applied to real property largely untouched; hence the archaic and difficult language in the Real Property Limitations Act. For example the key definition in s. 1 of “land” uses the archaic term “messuages,” which, as I understand it, means a dwelling house, its outbuildings, the area immediately surrounding the dwelling, and the adjacent land appropriate to its use (para 14).

Therefore, the central question at issue in this appeal is “whether a claim for unjust enrichment in which the claimant asks the court to impose a constructive trust upon the respondent’s real property is an action to recover any land” (para 15).

The answer to this question, in turn, hinges on the meaning of the word “recover.” Mr. Huxtable argued that an initial claim for a right cannot fall under the word “recover,” as that connotes the recapture of something that was previously owned.  The court canvassed the use of the word in other cases and concluded that a claim to a constructive trust in real property can constitute a recovery of land.

There is also the question of determining the date when the ten-year period begins to run:

Generally speaking, a claim of unjust enrichment requires that the defendant retain a benefit without juristic reason in circumstances where the claimant suffers a corresponding deprivation. In other words, the relevant act of the defendant is simply the act of keeping the enrichment (or the omission to pay it back) once the elements of the unjust enrichment claim have crystallized. In the family law context, this may typically occur on the date of separation, when shared assets, including real property, are divided and the possibility therefore arises of one party holding onto more than a fair share (para 52).

In taking this approach, the court was adopting a stance that is consistent with the Family Law Act, wherein the date of separation is treated as the date for valuation of property.

Potential Implications for Married Couples

McConnell involved a dispute between former common law spouses. However, as the court noted, the same principle would apply to any unjust enrichment claim, even in a commercial context. The principle is thus relevant as well to married people. While the Family Law Act does not refer to constructive trusts explicitly, in Rawluk v Rawluk, [1990] 1 SCR 70 [Rawluk], the Supreme Court ruled that this absence did not prevent constructive trusts from arising between married people:

“Property” is defined as … “any interest, present or future, vested or contingent, in real or personal property.” This all-encompassing definition is wide enough to include not only legal but beneficial ownership (Rawluk, p 91).

A constructive trust can be more advantageous for the non-titled spouse than a simple equalization based on the value of the property on the date of separation. In the case of real property, its value might continue to appreciate after separation, as occurred with the farm property at issue in Rawluk.

The limitation period specified for property equalization claims under the Family Law Act is two years after the date of a divorce. However, based on the ruling in McConnell, the much longer limitation period for constructive trust interests in real property could also apply to formerly married people.

All claims are supposed to be identified as part of a comprehensive settlement between divorcing spouses, and to be taken into account in the calculation of net family property for equalization purposes. A very long limitation period may in some cases increase the bargaining power of one spouse over the other. The spouse with more real property subject to such claims will be more concerned about achieving closure. This consideration calls for extra care in the drafting of property settlements to explicitly exclude additional new claims after the date of settlement.

Further Need for Reform in the Limitations Act

Mr. Huxtable denies that Ms. McConnell provided any significant help with the property in question, but this motion was about the legal principles, and the facts remain to be tried.    With the passage of time, pertinent evidence is likely to become lost, and the memories of witnesses become increasingly unreliable.  Excessively long limitation periods can create difficulties that impair the administration of justice.

Justice Rosenberg recounts some of the history of legislative developments in this area and is quite explicit in his view that there is unfinished business:

[O]riginally the intent was to deal with limitation periods for all claims. However, this approach was abandoned apparently as a result of consultations ….  The Group reported that it did not have the necessary expertise to deal with actions to recover land. Thus, language in earlier drafts of the new limitation legislation dealing with limitations of actions to recover real property was stripped out of what eventually became the Limitations Act, 2002. This history strongly suggests that actions to recover land are outside the Limitations Act, 2002…. The Legislature’s inability to deal with real property claims unfortunately detracts from the clarity that was a paramount objective of the new approach to limitation periods as represented by the Limitations Act, 2002 (McConnell, paras 25-26).

The interpretation in McConnell highlights the need for a more comprehensive reform. Legislation that is hundreds of years old, and that was developed to deal with issues of adverse possession in an agrarian society, persists to rule the affairs of modern-day couples. As I have noted previously, statutes of limitations serve an important purpose in letting people get on with their lives without having to worry about lawsuits many years after their personal or professional relationships have ended. The Limitations Act clearly needs more work to achieve a consistent approach to that objective.