In today's Pacitti v. 1439200 Ontario Inc., 2008 ONCA 736 decision the Court of Appeal considered a judgment where an otherwise ordinary debt was held to be protected by a constructive trust.
The purpose of the imposition of a constructive trust was to protect the judgment in the event of a bankruptcy.
On principle alone the judgment seems troubling. Why should an ordinary debt receive special treatment under bankruptcy just because a judge thought the claim should be protected?
Regardless the Court did not rule out the use of a constructive trust in any situation but did say the trust could not apply where there was not even a suggestion of bankruptcy to come.
The Court held:
[10] Finally, while we are sympathetic to the objective sought to be served by the trial judge in imposing a constructive trust on certain of the monies owed by the appellants to Luigi Pacitti, in the circumstances of this case we agree with the appellants that a constructive trust should not have been imposed.
[11] A constructive trust remedy was sought by the respondents to protect against the possible bankruptcy of one or both of the appellants. On the record before the trial judge, there was no evidence of a pending or even an intended bankruptcy of either appellant. To the contrary, the prospect of a bankruptcy was entirely speculative. Without deciding whether the fact of an impending bankruptcy would have justified the imposition of a construction trust, on this record it could not be said that the trial judge's award of damages in favour of the respondents was an insufficient remedy for the appellants' breach of contract. Accordingly, the finding of the constructive trust cannot stand.
James Morton
1100 - 5255 Yonge Street
Toronto, Ontario
M2N 6P4
2 comments:
How could a common judgment in damages be transformed into a trust in any case? It sounds like a judicial fraudulent preference at best. There are some very obscure cases dealing with the power of the bankruptcy court (from its origins as the Court of Chancery) to look behind judgments of ordinary, civil courts and, in some limited circumstances, actually set them aside. I took the BC Court of Appeal by surprise with that proposition once although, at the end of the day, they were able to decide the case my client's way without relying on it. I was asked, however, to provide a memorandum of law to the court on that point.
I agree -- it doesn't make a lot of sense
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