In my estate and trust litigation practice, I often see cases where one party seeks to enforce an alleged promise (for example, a promise to transfer or gift property) by a second party, which is now denied by that second party. One potential remedy is a finding that the property is held in an express trust as a result of the conduct of the parties, in particular the conduct and the words of party who held the property and is alleged to have promised to gift it.
The B.C. Court of Appeal recently considered such a claim in Virk v. Singh 2022 BCCA 153. In Virk, Mr. Singh was very close to Mr. and Ms. Virk, until Mr. Singh had a falling out with Mr. Virk. Mr. and Ms. Virk separated. Mr. Singh owned the property next door to the Virks’ matrimonial home. Mr. Singh promised to give that property to Ms. Virk in exchange for money she would receive from her family law action against Mr. Virk (which Mr. Singh encouraged her to bring), and for her help with a lawsuit brought against him by Mr. Virk. Ms. Singh fulfilled her end of the agreement. She provided Mr. Singh with monies from the settlement of her family law claim, and she helped him defend against the claim brought by Mr. Virk. She also lived at the property and paid expenses for the property for many years. However, Mr. Singh failed to give her the property.
Ms. Virk claimed that the promise to provide the property to her created an express trust.
In order to establish an express trust, there must be three certainties: certainty of intention, subject and object.
In Virk, the issue was whether there was certainty of intention. Usually, when you are creating an express trust there is a formal (written) trust agreement. Where there is no formal agreement, then a court can determine whether there is certainty of intention “by looking to the surrounding circumstances, the evidence of what was agreed upon, and how the parties conducted themselves.” The critical element is the settlor’s intention (in this case, Mr. Singh). That intention can be express or implied. The court must undertake an objective inquiry, to determine whether there is an intention to form an express trust. The court will look at what a reasonable person would conclude from the words and conduct of the parties, as well as the surrounding circumstances. The court must look at intention at the time of the transaction. The court will be very careful when looking at post-transaction conduct.
The trial judge held that Mr. Singh’s promise was a false one and that he never actually intended to give Ms. Virk the property, and therefore there was no certainty of intention. Ms. Virk appealed.
The Court of Appeal held that the trial judge erred when concluding that Mr. Singh’s promise to give the property to Ms. Virk was a false one because he never subjectively intended to transfer her the beneficial interest in the property. The Court of Appeal held that one cannot claim to lie to the other party about intention to give the property, carry out the actions necessary to do so, and then rely on the fact that the communication was a lie. The trial judge erred by failing to assess the certainty of intention on the objective standard. She also erred in not limiting her consideration to surrounding circumstances at the time of the promise. The trial judge also relied on post-transaction conduct, which was a problem in Virk because the trial judge had found Mr. Singh to not be credible (and if a party is not credible, then evidence of their post transaction conduct should be given little weight).
However, despite the errors, the Court of Appeal upheld the result. A reasonable person at the time the promise was made would likely conclude that Mr. Singh intended to benefit Ms. Virk if she fulfilled certain future conditions, but not necessarily that she would benefit on trust. As a result, there was no express trust.
Fortunately, the trial judge held that Mr. Singh had been unjustly enriched by Ms. Virk’s payments to him (i.e. fulfilling her side of the “deal”) and her contributions to the maintenance of the property, and granted Ms. Virk a constructive trust in the amount of 70% of the increase in the value of the property from the time of the false promise. This award was upheld by the Court of Appeal.
This decision shows that the court can attempt to make an award that is fair and equitable in the circumstances, but the court will not create an express trust where the requirements are not met.