On trial, the judge noted the parties were not “spouses”, and as such were not in a relationship to which the presumption of advancement, or gift, applies.  Kerr was accordingly awarded a one-third interest, or $315 000, in the matrimonial home (Baranow’s home) by application of the equitable doctrine of resulting trust, or, in the alternative, unjust enrichment. An explanation of the elements of the doctrines of resulting trust, constructive trust, and unjust enrichment, as follows:

[42] A resulting trust is an equitable doctrine that, by operation of law, imposes a trust on a party who holds legal title to property that was gratuitously transferred to that party by another and where there is evidence of a common intention that the property was to be shared by both parties. In these circumstances, the law raises a rebuttable presumption of a resulting trust to the transferee.

[43] A constructive trust is an equitable remedy that provides proprietary relief for property in the name of another, where a claim of unjust enrichment is established by the non-owning party and a monetary award based on quantum meruit would not be adequate. The three-fold elements of unjust enrichment include enrichment, a corresponding deprivation, and the absence of a juristic reason for the enrichment. [My underlining.]

Madam Justice Smith, writing for the British Columbia Court of Appeal, held that the requirements for making out a resulting trust were not met. First, Kerr’s transfer of her property was not gratuitous. Baranow acquired title upon the mortgage that was under foreclosure at great expense to himself by paying the outstanding judgments, taxes, charges, as well as going on to pay regular future payments associated therewith. Smith J.A. found the trial judge’s findings on this issue to be a palpable and overriding error, as is the deferential standard of review in respect of findings of fact.

Having concluded that the presumption of resulting trust cannot apply to the circumstances of this case, it was unnecessary for Smith J.A. to address the common intention requirement for establishing a resulting trust. She commented on it anyway, finding flawed the trial’s judge notional transfer of an earlier common intention to share Kerr’s home to a common intention to share Baranow’s home. Smith J.A. brought specific attention to the separate financial arrangement they maintained throughout their relationship.

Smith J.A. then turned to Kerr’s claim for unjust enrichment, noting the fundamental difference between conventional marriages and common-law relationships in dividing assets:

[66] The mutual exchange of “spousal” services is typical in most marriage and marriage-like relationships. In cases involving the breakdown of a conventional marriage the valuation of those services is unnecessary because the [Family Relations Act] provides for a prima facie presumption of equal entitlement to family assets upon the happening of a defined triggering event. However, as was noted in Walsh, individuals who choose to live together outside a conventional marriage are not subject to any legislative presumption of the sharing of assets upon the breakdown of their relationship. They must establish [the elements of unjust enrichment: 1)] enrichment, [2)] deprivation and [3)] an absence of juristic reason for the enrichment in order to obtain a monetary award or a remedial constructive trust over property in the other spouse’s name. The inquiry into the absence of juristic reason involves an examination of whether the claimant had a legitimate expectation to share in the other’s assets both during and after the relationship has ended.

As part of establishing such an absence of juristic reason, the court should have regard to the reasonable or legitimate expectations of the parties. Smith J.A. found,

[m]orever, in order to determine the legitimate expectations of the parties, the court must undertake a global analysis of the facts of each case to see whether the enrichment was unjust (based on expectations of sharing) or whether the benefits received were simply part of a mutual exchange of “spousal” services that typically occurs in most marriage or marriage-like relationships. [My underlining.]

Smith J.A. drew this from Thomas v. Fenton, 2006 BCCA 299. In that case, the trial judge concluded that the conferring of benefits by the husband relating specifically to the renovations was automatically without juristic reason. Taking a broad view, or “global analysis”, however, the British Columbia Court of Appeal looked at the whole of the relationship and found “nothing unfair or unjust in this arrangement[:] Ms. Fenton provided Mr. Thomas with essentially free room and board for almost 30 years. … It is manifestly clear that Ms. Fenton bestowed far more on Mr. Thomas than he bestowed on her.”  Accordingly, Smith J.A. found in this case that Baranow’s direct and indirect contributions (monetary and otherwise) over the course of the relationship to be greater than those of Kerr’s, so as to be the juristic reason by the lack of which Kerr’s claim of unjust enrichment must fail.

It is this “global analysis” espoused by the British Columbia Court of Appeal, concerning unjust enrichment and thus the division of property in common-law relationships, that appears to be the main finding of law in contention on appeal (“Whether the Court of Appeal erred … in holding that it is an error in law for a trial judge to apply a general fairness test when considering resulting trusts or unjust enrichment for a division of property.“). While I am admittedly not yet well-versed in the intricacies of family law, I will nonetheless attempt to comment on the seeming justness of the principle, as purported to in this judgment.

At first glance, it seems difficult to see why a claim for benefits unjustly conferred should not remain severable from the ongoing exchange of unrelated benefits characteristic of marriage or marriage-like cohabitation. Why should a determination of one party’s proprietary interest in the matrimonial home by necessity take into account, say, the other party’s prior and ongoing caregiving services? A safe development of the law, short of a global analysis, would be to espouse and allow for a flexible “contextual” analysis that broadly strives to take into consideration as many factors and circumstances relevant to the subject matter as possible, though not by requirement any more than that.

But may we go further, and mount a defence of the so-called “global analysis”? I believe so. Unjust enrichment, which is an element of the constructive trust, is not as restrictively defined as a resulting trust (wherein a proprietary interest only arises from a prior property transfer). The Court of Appeal’s global analysis thus accords with the broader concept of unjust enrichment.  The real question, though, is: why should relevance or relatedness to the matter (i.e. Kerr and Baranow’s competing conferred benefits in regards to the matrimonial home) be that which bounds or hinges the claim? Forgetting relatedness, it should be a matter of validity. In other words, what principled reason ought to prevent a plea for a disgorgement of benefits unjustly conferred from being set off by any other prior benefits taken into consideration and correspondingly deemed by a court to be equally unjustly conferred, and so equally validly disgorgible? Such an approach, which looks into and acknowledges all that the parties have painfully invested into the relationship, would seem better.  It is more comprehensive, and thereby perhaps more just, and more conclusive.

Turning back one last time to the case at hand, it would seem that even if a global analysis is rejected in favour of the plaintiff, there would still be no relief: the core of the claim, the finding of a contribution by Kerr of $60k towards the aquisition of Baranow’s property, was found by the Court of Appeal to be a palpable and overriding error on the part of the trial judge.  It would be a shame, however, if the Supreme Court were merely to uphold the Court of Appeal’s judgement on this narrower ground and pass by this opportunity to truly ’go global’.

Bob owns a house in a town in Quebec. In 2020, Quebec passes legislation to the effect that no municipality may increase property taxes by more than 10% each year. In 2022, citing the need for higher revenues to account for an increase in police services due to rising crime, the town increases property taxes by 15%.

Can Bob claim that the 15% tax hike is ultra vires the municipality and attempt to recover the extra 5%?

Yes.

But can Bob launch a class action suit against the municipality as a representative plaintiff for all property owners affected by the tax hike in his town?

In the words of Justice Deschamps of the Supreme Court of Canada: “…if an individual plaintiff can in an ordinary action seek both a declaration that a municipal by-law is null and the recover [the] taxes, I do not see why a similar claim could not be made by means of a class action” (at para. 125).

Unfortunately, Justice Deschamps’s reasoning forms the four-justice dissent in the recent Supreme Court ruling in Marcotte v. Longueuil (City), 2009 SCC 43. Justice Lebel, writing for the five-justice majority, held that a class action is not an appropriate procedure to challenge the validity of a municipal by-law. Besides the negative practical implications for access to justice through class actions, the majority reasons lacked the vigour and depth that the dissent provided in analyzing Quebec class action law.

Marcotte involved two cases against the City of Longueuil that were joined together at appeal. The appellant Marcotte was a resident of Saint-Lambert, Quebec and the appellant Usinage Pouliot Inc. was a business in St-Bruno-de-Montarville, Quebec. On January 1, 2002, as a result of a municipal reorganization, the eight cities of Boucherville, Brossard, Greenfield Park, LeMoyne, Longueuil, St-Bruno-de-Montarville, Saint-Lambert, and Saint-Hubert amalgamated and became the City of Longueuil. A foreseeable consequence of the amalgamation was to equalize municipal taxation within the newly formed city. The Quebec National Assembly accordingly established a scheme to gradually equalize taxes between the different sectors over a period of 20 years. As part of the scheme, the Province limited Longueuil’s taxing power by placing a cap of 5% on annual tax increases in any one sector.

The appellants alleged that the City exceeded this 5% tax increase ceiling in the fiscal years 2003, 2004, and 2005. They filed motions for authorization of class actions to have the municipal by-laws nullified and the tax amounts refunded.

The Quebec Superior Court did not authorize either class action, holding that, although the plaintiffs had established prima facie cases, a class action was not an appropriate avenue for actions seeking to quash municipal by-laws. The Quebec Court of Appeal upheld the lower court’s decision, holding that a class action would be “pointless” because a declaration of nullity of the by-law would apply to all municipal taxpayers in Longueuil regardless of membership in the class (2007 QCCA 866 at para. 23).

Authorization of a class action in Quebec is governed by Article 1003 of the Code of Civil Procedure (R.S.Q., c. C-25), which provides:

The court authorizes the bringing of the class action and ascribes the status of representative to the member it designates if of opinion that:
(a) the recourses of the members raise identical, similar or related questions of law or fact;
(b) the facts alleged seem to justify the conclusions sought;
(c) the composition of the group makes the application of article 59 or 67 difficult or impracticable; and
(d) the member to whom the court intends to ascribe the status of representative is in a position to represent the members adequately.

This test is similar to the test for certification of a class action in all common law provinces except for one key difference. In other common law provinces, a class action must be the most appropriate or preferable procedure for resolving common issues while in Quebec, mandate or joinder of plaintiffs must be impracticable for recourse to a class action.

In upholding the Court of Appeal decision, the majority of the Supreme Court found that, although requirements under (a) and (d) were met, the plaintiffs failed to establish a prima facie case under (b), and the composition of the group was not such that a class action was required under (c).

Holding that the plaintiffs had failed to establish a prima facie case, the Court focused on the consequences of declaring a municipal tax provision null. The Court found that a declaration of nullity would not result in an immediate right to a refund of the taxes paid. Rather, a declaration of nullity would result in requiring the municipality to recalculate taxes for the fiscal years in question. Only after such a recalculation would a liquid and exigible claim arise. The Court ultimately concluded:

Under the rules applicable to the restitution of prestations, it is unlikely that the amount of their claim would correspond to the amount they are seeking. Given this legal framework and this context, the conclusion being sought does not meet the prima facie case requirement of art. 1003(b) C.C.P. (at para. 36)

The majority reasons hinted at, but did not directly rely upon, two further reasons for dismissing the class action: the fiscal chaos and fiscal inefficiency that would ensue, as well as the possibility of the judiciary overstepping its bounds by effectively issuing a writ of mandamus to a municipality. The Court was also concerned about allowing class actions as an avenue for administrative law annulments of municipal laws, which are under the statutory jurisdiction of superior courts:

Recourse to the class action in such situations could hamper the conduct of proceedings that are in principle simple and quick, and would hardly be consistent with the principle of proportionality set out in art. 4.2 C.C.P. (at para. 41)

As Justice Deschamps points out in her dissent, the majority judgment (as well as the Court of Appeal and Superior Court judgments) does not discuss “why it might be more practicable to pursue the claim for restitution by mandate or by joinder” rather than by class action (at para. 121). In dismissing the class action, the Court does not suggest an alternative that is available to the plaintiffs. No discussion is provided of the pros and cons of a class action versus a claim by mandate or by joinder.

According to the dissent, “the information they have provided is, prima facie, capable of supporting an inference that the ceiling was exceeded” (at para. 94). Justice Deschamps rejected the assertion that, since the municipality would have to recalculate the taxes owed, the complex budgetary and fiscal implications that would result from a finding of nullity would mean that a prima facie case is not made. At the authorization stage of the class action, the analysis of how to calculate the taxes owed or the exact discrepancy need not be comprehensive.

In a separate decision (Breslaw v. Montreal (City), 2009 SCC 44), the court dismissed a similar class action authorization against the City of Montreal. There, the four justices that dissented in Marcotte concurred with the majority decision in finding that Breslaw had no prima facie case against the city. In this case, the plaintiff alleged that although the tax burden appeared to fall within the 5% maximum, the City of Montreal had made adjustments which it did not have the authority to make in calculating which taxes were part of the equalization and which taxes were imposed otherwise (and thus not restricted by the 5% ceiling).

Although the Marcotte and Breslaw decisions relate to the provincial regime in Quebec for class action authorization, the decision has implications for all common law provinces (see Professor Morton’s short post on the decision). First, the requirement in common law provinces that a class action must be preferable to other actions is arguably a higher threshold than the Quebec requirement that the composition of the class group makes it difficult or impracticable to use an alternative to a class action. Second, the administrative law aspect of the Marcotte—that a class action is not an appropriate avenue to strike down municipal by-laws—has some resonance in constitutional law (see Guimond v. Quebec (Attorney General), [1996] 3 S.C.R. 347). This aspect of Marcotte would be equally applicable to common law provinces. Unfortunately, this decision may consequently “grant municipalities immunity from class actions for the recovery of wrongfully collected taxes and, in so doing, block ratepayers’ access to justice through such proceedings” (at para. 45).

Surprisingly, at trial, the judge awarded BMP damages in the amount of the funds taken from BMP’s account by Scotiabank on the basis that the bank was in breach of its banking contract, ignoring restitutionary principles usually applied to mistaken payment cases. The trial judge took a very narrow view of the expectancy damages calculation, holding that BMP suffered a loss of this money despite the fact that it had no legal entitlement to it since it was based on a counterfeit cheque.

The British Columbia Court of Appeal reversed this decision, holding that since the cheque that had been deposited was counterfeit and BMP had not been legally entitled to any funds from that cheque, Scotiabank’s act of debiting the funds from BMP’s account had not caused BMP to suffer any damages. As the Court of Appeal notes, in an ordinary mistake of fact case, it would be the party that has suffered the loss (Royal Bank in this case) bringing an action for the return of funds that had been paid by mistake against the person who had received the windfall. Here, it was Scotiabank that had repossessed the funds in BMP’s account on Royal Bank’s behalf. And it was the BMP, the party who had received the mistaken payment and then had it taken away, who brought the action against Scotiabank. However, the Court of Appeal held that, regardless of these differences, this was essentially a mistake of fact case where Scotiabank had released funds to BMP on the mistaken understanding that the cheque was valid and that under ordinary restitutionary principles, the bank was entitled to retrieve the money.

It is difficult to see how the SCC would allow BMP to recover this money which was paid by mistake and give effect to a fraudelent transaction, regardless of the fact that BMP was also innocent to the fraud. It is not clear that the cheque was in fact related to the licensing agreement or that BMP had paid any consideration for the funds it purported to transfer. Further, it does not appear that BMP has any equitable defences, such as a change of position or detrimental reliance upon the money. In balancing the interests between the two innocent parties, there is no reason why greater weight should be given to BMP’s interest in retaining money for which it had no legal entitlement vis-a-vis the bank’s interest in returning it to its rightful owner. If the money was in fact returned to BMP, Royal Bank would still have a claim for the return of these funds from BMP in money had and received. As an aside, Royal Bank did in fact commence a separate action for recovery of the portion of funds from the counterfeit cheque which had been spent by BMP by the time Scotiabank froze its account. An attempt to join the two actions had been refused by the lower court. Perhaps it may have been more practical to make Royal Bank, Scotiabank and BMP parties to the same action to resolve all issues as between the parties, a solution which is available in the U.S. under the Uniform Commerical Code.

Regardless of the final result, this case is a great opportunity for the SCC to provide further clarification of the laws of restitution in Canada and to build upon the principles of unjust enrichment established by previous decisions such as Deglman v. Guaranty Trust and Pettkus v. Becker.

In December of 2006, the Japanese Parliament passed bills to amend the Usury Act of 1954 and the Loan Business Regulation Act of 1983. One of the amendments deleted a provision in the Usury Act that reads to the effect that a borrower cannot claim the return of the interest payment that exceeds the limitation of the Usury Act when he voluntarily paid that interest. In conjunction with this deletion, a statutory presumption of the voluntariness was also deleted from the Loan Business Regulation Act. The presumption given in the Act was as follows: excessive interest payments are presumed to have been voluntarily made as long as the borrower was informed of core contract terms in written document specified by the Act and was also presented with the receipt of the payment in the format specified by the Act. These amendments can be attributed to the following line of decisions by the Supreme Court over several decades, though a preparation period of two and a half years are allowed for the amendments to take effect.

The Supreme Court judgments of July 13th in effect rang the death knell to excessive interest payments allowed by the Usury Act before these amendments are implemented. The judgments went one step further in the protection of consumer-loan borrowers, because they required the consumer-loan companies to pay to the borrowers the statutory interest that accrued from the excessive interest payments as well as the excessive interest payments themselves. To be sure, it is very rare for the Supreme Court of Japan to commit itself to judicial policy making and to take an initiative in law reform through making judicial precedents. Yet, the regulation of loan sharks is the best known area of law that the Supreme Court took the lead in the legislative reform.

After World War II, the Usury Act was enacted to provide for the ceilings of interest rates: The first paragraph of the Section One in the Act sets out the limits to be 20% interest on a principal of less than ¥100,000 (approximately CA$806), 18% on a principal of ¥100,000 or less than ¥1,000,000, and 15% on a principal of ¥1,000,000 or more. Right after the ceilings provisions, there is a sentence that declares the excessive interest charge to be null and void. The second paragraph of the Section One, however, provides that the excessive interest voluntarily paid by the debtor shall not be claimed for restitution.

It is equivocal to provide that the excessive interest charge is null and void along with the sentence to mean that the void interest payment does not need to be returned to borrowers if the payment is voluntary. The Supreme Court at first interpreted the section in favour of lenders. In a case decided in 1962, debtors claimed for setting off the principal with their excessive interest payments. The Court rejected this claim on the ground that the excessive interest payment was void, but that judicial assistance was not available because of the second paragraph of the Section One. Only two years later, however, the Court changed the position. This is said to be attributable to the retirements of several old justices on the Supreme Court Bench. In a case of 1964, the Court granted to set off the principal with the excessive interest payments on the ground that the excessive interest payments were void and therefore the payments presented without legal obligations were to be counted toward setting off the principal. Please note that this case concerned only the deduction of the principal with the excessive interest not the returning the excessive interest for restitution.

In a subsequent case in 1968, the Court granted the restitution to return the excessive interest payments to debtors when the balance remained after setting off the principal with the excessive interest payments. This may seem a patent disregard for the second paragraph of Section One in the Usury Act that provides that excessive interest payments cannot be claimed for the restitution. Nonetheless, the Court explained that the applicable law is Section 703 of the Civil Code, which provide for the return of the unjust enrichment, not Section One of the Usury Act, because there was no interest involved in the case of no principal remaining.

The rampant prevalence of the usury business in Japan is attributable to the equivocal provisions of the Usury Act and the ignorance of the people on the developments of the Supreme Court precedents. Many borrowers from consumer-loan companies are taken advantage of due to their ignorance of law. There is another great factor that helps the usury business. That is what is called a grey zone interest rate. When the Usury Act was enacted in 1954, the Act of Regulating Investment, Money Deposit and Loan Interest (the Investment Act) was also enacted in the same year. The Investment Act of 1954 provides for criminal punishment on loan sharks. The interest rate punishable by the Investment Act was originally the rate beyond 109.5%. The punishable rate was lowered to the rate beyond 40.004% in 1983. There still exists the zone of interest rate which is unlawful in the Usury Act but not punishable by the Investment Act.

In 1984, when the punishable interest rate was lowered, another act was passed to introduce the administrative control over the consumer-loan business. Consumer-loan financiers are required to register with the Government and provide borrowers with adequate information on core terms of loan contracts in written documents specified by the Investment Act and also a receipt of the payment in the format specified by the same Act. The enactment of the Investment Act was the carrot and the stick for consumer-loan financiers. The lowering the punishable interest and the introduction of administrative oversight are the stick part. The carrot part is that excessive interest payments are to be presumed to have been made voluntarily as long as the written document requirement and the receipt requirement are met. This set of the carrot and stick legislative measures, in a sense, overrode the judicial precedents of making excessive interest payments be returned for restitution.

Even after 1984, the Supreme Court has been making consistent efforts to eradicate loan shark activities by meticulously interpreting the written document requirement and the receipt requirement. To give recent examples, the delay in issuance of the receipt forms for seven to ten days were held deficient to meet the statutory receipt requirement and statements of the loan account consolidated with receipt forms were held unsatisfactory for the purpose of the Investment Act (both decided in 2004). The judgments covered by the headline of this column, rendered in July 2007, also concern the written contract document requirement and the receipt requirement, but went one step further. Consumer-loan financiers who knew or had a reason to know that their written contract documents were deficient were found to be bad faith beneficiaries, so that they were required to pay statutory interest that had accrued from the unjust enrichment as well as the return of the excessive interest payments.

The rampancy of loan shark activities and an increasing number of victims of coercive collection activities have been repeatedly taken up by the mass media in recent years. One newspaper article reported that the number of suicides for the reason of economic hardship outnumbered the death toll of traffic accidents in 2003 for the first time in Japan: the former being 8897, the latter 7702. The majority of economic suicides are believed to be involved in consumer-loan insolvency. The recognition of these situations has lead to the before-mentioned legislative reforms to delete the non-restitution provision in the Usury Act and the statutory presumption of voluntariness in the Loan Business Regulation Act in December 2006. In the long-term legislative reform, it is the Supreme Court that provided doctrinal bases for these legislative measures. The Parliament in the same session made another amendment to the Investment Act of 1954. That is to set the punishable interest rate at the 20%, that is very close to the interest rate ceilings provided in the Usury Act. This is a very important step to plug up loopholes in usury law. It will take two more years for these amendments to be implemented. In the meantime, it is sure that the Supreme Court will keep their oversight on excessive interest payments. And yet, the biggest remaining challenge in usury law is the tight law enforcement against blatant violators of law in the black market of consumer-loan finance.