By Kayleigh Pink, Associate Research Lawyer, Lam Family Law*
 
Refresher on Resulting Trust Claims

The presumption of resulting trust is a rebuttable presumption and general rule that applies to gratuitous transfers. Where a transfer is made for no consideration, the onus is placed on the transferee to demonstrate that a gift was intended. This is because equity presumes bargains, not gifts: MacIntyre v. Winter, 2021 ONCA 516 (CanLII), at para 18, citing Pecore v. Pecore, 2007 SCC 17 (CanLII), at para 24.

For a resulting trust to exist, a claimant must have made a financial contribution to the initial purchase of the property and there must have been a gratuitous transfer from the claimant to the recipient: Whiteside v. Govindasamy, 2021 ONSC 789 (CanLII), at paras 67 & 88, citing Kerr v. Baranow, 2011 SCC 10 (CanLII).

With respect to married spouses, the presumption of resulting trust still applies in property ownership disputes, unless the spouses hold the property as joint tenants, in which case there is a rebuttable presumption in favour of joint tenancy: Family Law Act, RSO 1990, c F.3, s. 14.

In all resulting trust cases, it is the intention of the transferor at the time of the transfer that governs the analysis of whether a resulting trust or a gift was intended: MacIntyre v. Winter, 2021 ONCA 516 (CanLII), para 24, citing Kerr v. Baranow, 2011 SCC 10 (CanLII).

Holtby v Draper

The Court of Appeal for Ontario (“ONCA”) in Holtby v. Draper found that a motive to shield property from creditors does not itself rebut the resulting trust presumption.

In that case, the husband had transferred his 50% interest in the property to his wife (making her the sole owner) with the intention of defeating creditors. Despite the husband’s intention, the trial judge held that the presumption of resulting trust applied and was not rebutted: Holtby v Draper, 2015 ONSC 7160 (CanLII), at paras 65-66, 72, & 80.

On appeal, the wife did not dispute that the husband’s intention was to defeat creditors, but argued that the husband should not be able to rely on the doctrine of resulting trust because of his “illegal” purpose of defeating creditors: Holtby v. Draper, 2017 ONCA 932 (CanLII), at paras 53-55 & 72.

The ONCA acknowledged the general rule that a party cannot rely on his or her own “illegality” in claiming a resulting trust or other equitable remedy; however, “the intention of the parties is always a question of fact to be determined from the evidence.” Further, “while evidence of an intention to defeat creditors can be evidence of a gift, it is not conclusive.” Ultimately, the ONCA found that the trial judge did not err in finding a resulting trust, and confirmed that “[a] motive to shield property from creditors does not itself rebut the resulting trust presumption” and the “issue is always the intention of the transferor in relation to the transferee”: Holtby v. Draper, 2017 ONCA 932 (CanLII), at paras 53-55 & 72.

Leave to appeal to the Supreme Court of Canada was dismissed: Cheryl Draper v. Kenneth Holtby, et al., 2018 CanLII 110474 (SCC).

Since Holtby v. Draper

The intention to avoid creditors is relevant in so far as it will be considered as part of the factual analysis of the transferor’s intention; however, it is not conclusive either way.

As such, there are recent cases finding a resulting trust despite the transferor’s intention to shield property from creditors: see, e.g., Lavallee v. Lavalley, 2022 ONSC 5297 (CanLII) & Alajajian v. Alajajian, 2019 ONSC 4678 (CanLII).

There are also cases where the transferor’s intention was to shield property from creditors and the presumption of resulting trust was rebutted: see, e.g., London-Shiffman v. Shiffman, 2020 ONSC 8006 (CanLII) & Kyriacou v. Zikos, 2021 ONSC 7589 (CanLII).

Kyriacou v. Zikos is a particularly interesting decision where the presumption of resulting trust was rebutted. The parties were romantically involved (their legal status as spouses was not necessary to decide as there was no support claim). They purchased a house together. The man later transferred his interest in the property to the woman, which he admitted he did to avoid creditors (i.e., his children), although the court questioned whether this was true. Justice Kimmel interpreted Holtby v. Draper as standing for the proposition that “a general intention to defeat creditors will not always defeat a trust claim where no creditors were actually prejudiced”. The court found that this case was distinguishable because the man’s intention here was to defeat specific creditors. Ultimately, Justice Kimmel held that the man had “not come to court with clean hands and he is not deserving of an equitable trust remedy from the court”: Kyriacou v. Zikos, 2021 ONSC 7589 (CanLII), at paras 2, 4-5, 45, & 71-72.

Kyriacou v. Zikos is arguably inconsistent with Holtby v. Draper in that the ONCA had found in Holtby v Draper that there was an intention to defeat a specific creditor and, nevertheless, found there was no error in the trial judge’s conclusion that, as a matter of law, the intention to defeat creditors did not defeat the husband’s resulting trust claim: Holtby v Draper, 2015 ONSC 7160 (CanLII), at paras 49-51; aff’d 2017 ONCA 932 (CanLII), at paras 50-51 & 71-72.

With the exception of perhaps Kyriacou v. Zikos, the case law has been clear and consistent that a transferor’s intention to avoid creditors will be considered as part of the factual analysis of the transferor’s intention, but it is not determinative of whether a resulting trust exists or is rebutted.

 

*with thanks to Vanessa Lam for her suggestions and edits.