The assistance of articled student Richard Sehmer is gratefully acknowledged.
[editor’s note – This decision was reversed by the British Columbia Court of Appeal on Sept. 8, 2011: see Ladner v. Wolfson, 2011 BCCA 370. ]
In October 2010, the Supreme Court of British Columbia released its judgment in Ladner v. Wolfson [2010] BCSC 1408, which extended the application of the “good conscience” constructive trust remedy as pioneered by the Supreme Court of Canada in Soulos v. Korkontzilas [1997] 2 S.C.R. 217.
In Soulos, the court had held that even where there is no “unjust enrichment” in the traditional sense, on some occasions “good conscience” still requires the imposition of a trust. It was ruled that before a “good conscience trust” is imposed, the defendant must have been, amongst other things, under an “equitable obligation” in favour of the person asserting the trust.
The Ladner case arose after a Vancouver man failed to name his ex-wife as a beneficiary under his $400,000 life insurance policy contrary to the agreed terms of their divorce settlement. After his death, she brought an action for breach of contract, but due to the estate’s insolvency she was unable to recover the full amount of her judgment. She then successfully sued her lawyers who neglected to pursue an alternative trust claim that would have given her priority over the estate’s other creditors.
The B.C. court turned to Soulos to determine whether a trust claim would have been successful had her lawyer advised her to pursue it. It was held that despite the deceased having committed only a common law breach of contract which would not traditionally have given rise to equitable remedies, a “good conscience” constructive trust had arisen dictating that the proceeds of the insurance policy were nevertheless held in trust for the ex-wife.
In Soulos the Supreme Court of Canada had decided that a constructive trust may apply to a breach of fiduciary relationship “absent an established loss to condemn a wrongful act and maintain the integrity of the relationships of trust which underlie many of our industries and institutions.” The B.C. court in Ladner extended this concept by deciding that although the relationship between former spouses is not a fiduciary one, the relationship may be “trust-like,” giving rise to similar protection.
