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    • Month: November 2025

    Businessmen and real estate agents discussing documents signing a legal purchase of a house

    Constructive and Resulting Trusts: What They Are and Why They Matter

    When most people hear the word trust, they picture a financial planning tool catered to the wealthy. However, in Canadian law, two special types of trusts are relevant among a wide array of individuals. These are known as constructive and resulting trusts.

    Unlike traditional trusts that are planned and prepared in advance, constructive and resulting trusts are imposed by courts as remedial measures once a dispute arises. These trusts are used to ensure fairness and equity within our justice system.

    Constructive Trusts

    A constructive trust is ordered when the court decides that one party to an action will be unjustly enriched at the other party’s expense. For example, in Pettkus v. Becker,[1] Ms. Becker and her significant other were in a common-law relationship for nearly 20 years. During this time, Ms. Becker invested her time, effort, and own income into a beekeeping business she built with her partner. All property and assets associated with the business were in Mr. Pettkus’ name. When their relationship came to an end, the Supreme Court of Canada recognized that allowing her partner, Mr. Pettkus, to walk away with the entire business would unjustly enrich him at her expense, recognizing her significant contributions to the business. Here, the Court imposed a constructive trust as a remedy, granting Ms. Becker a proprietary share despite her name never being on title. While Ms. Becker succeeded, the Court emphasized that a constructive trust is not automatic; the claimant must satisfy a three-part test to obtain this remedy. Specifically, the claimant must prove:

    1. Enrichment of the defendant;
    2. Corresponding deprivation of the plaintiff; and
    3. Absence of juristic reason for the enrichment.

    If all of these steps are met, a claimant will have a successful argument for the court to order a constructive trust.

    It is important to note that constructive trusts are not limited to situations where there has been unjust enrichment. The Supreme Court of Canada in Soulos v. Korkontzilas,[2] expanded the applicability of constructive trusts to include situations where there have been breaches of fiduciary duties. In this case, the defendant, a real estate agent, failed to disclose an offer to the property owner and instead arranged for his wife to secretly purchase the property. Although the agent was not necessarily enriched, because the property dropped in value, the Court still imposed a constructive trust to uphold “good conscience” and protect the integrity of fiduciary relationships.

    In order for a constructive trust to be applied in situations of breaches of fiduciary duties, the court imposed a four-part test that must be met:

    1. The defendant must have been under an equitable obligation in relation to the activities giving rise to the assets in his hands;
    2. The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff;
    3. The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties and;
    4. There must be no factors which would render the imposition of a constructive trust unjust in all the circumstances of the case.

    If the court is satisfied that all four factors are successfully met, a constructive trust will likely be granted.

    Taken together, these two cases illustrate that constructive trusts are a tool used by the courts to ensure no one unfairly profits from another’s contribution or where breaches of relevant duties are prevalent.

    Resulting Trusts

    Resulting trusts, though also an equitable remedy, differ slightly from constructive trusts. Resulting trusts operate on the assumption that people do not part with their property for free unless they clearly illustrate an intention to do so. More specifically, when someone transfers property without clear evidence of the property being a gift, courts will assume the transferee is holding it “in trust” for the original owner. To better illustrate resulting trusts, we can look at the Supreme Court of Canada decision in Pecore v. Pecore.[3] In Pecore, a father added his adult daughter as a joint holder of an investment account. On his death, she claimed the accounts by right of survivorship. However, her siblings argued that the funds belonged to the estate. The Court held that with transfers to adult children, the presumption of a resulting trust applies. Therefore, unless the daughter was able to show that the transfer of assets was a gift explicitly from her dad to herself, the property would revert back to the estate.

    Resulting Trusts – Ongoing Uncertainty in Regard to Beneficiary Designations

    The law is fairly clear when it comes to resulting trust presumptions in regard to transfers of property or joint accounts; however, the law is a little less clear with beneficiary designations on instruments like Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Tax Free Savings Accounts (TFSAs), or life insurance policies. These are technically contractual or statutory arrangements and not necessarily “transfers” in the traditional sense. Therefore, the law has been contradictory and is unsettled as to whether the presumption of a resulting trust should apply in these situations.

    For instance, in Calmusky v. Calmusky,[4] a father named one of his adult sons as the beneficiary of his RRIF. After the father’s death, his other son argued that those funds should fall to the estate, as they would if the presumption of a resulting trust were to be applied. The Court held that the presumption of the resulting trust does apply to beneficiary designations, meaning that the designated beneficiary of an account would have to adduce independent evidence of a gift to rebut the presumption that the beneficiary was intended to hold the account for the estate.

    However, Mak (Estate) v. Mak,[5] departed from the Calmusky decision. Here, the dispute was over a similar beneficiary designation of an RRIF account. The Court rejected Calmusky’s approach, finding that beneficiary designations are governed by statute, specifically by Ontario’s Succession Law Reform Act.[6] The beneficiary in this scenario was directly entitled to the proceeds and, therefore, the presumption of a resulting trust was inapplicable.

    Subsequent court decisions have continued to be divided on this point; there is no clear common law on the applicability of resulting trusts to beneficiary designations. This leaves great uncertainty for legal professionals and the general public alike.

     

    This blog was co-authored by articling student Adriana Piccolo.

    “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.”

     

    [1] [1980] 2 SCR 834.

    [2] [1997] 2 SCR 217.

    [3] 2007 SCC 17 [Pecore].

    [4] Calmusky v. Calmusky, 2020 ONSC 1506 [Calmusky].

    [5] Mak (Estate) v. Mak, 2021 ONSC 4415.

    [6] Succession Law Reform Act, R.S.O. 1990, c. S.26.

    By AlyssaBlog, Wills and Estates
    hourglass on the books on grey background

    Do I Still Have a Claim? Continuous Contract Breaches and Rolling Limitation Periods

    In Ontario, the Limitations Act, 2002, S.O. c. 24 Sched B. imposes deadlines by which claims for damages, injury, or loss must be brought. Generally, the deadline or “limitation period” is two years from the date upon which the claimant discovers or reasonably ought to have discovered the wrongdoing (s.4 Limitations Act). Failure to commence a claim within the Limitation Period will result in the claim being statute-barred, meaning the claim cannot proceed.

    Often, contracts include continuing obligations which create uncertainty as to when the claim is discovered. If the claim involves ongoing obligations, such as recurring payments, does the claim arise when the first payment is missed, or does it arise each time a payment is missed?

    Where there is a continuous breach of contract, the court may apply a “rolling limitation” perio,d which allows the limitation clock to begin anew each time a new breach is made.

    The Courts have had difficulty identifying when a claim has been discovered and whether to apply a rolling limitation period or not.

    The Trilogy

    Pickering Square Inc. v. Trillium College Inc., 2016 ONCA 179 (“Pickering”)

    Pickering involved a lessee (“Trillium College”) and a lessor (“Pickering Square”). The terms of the lease required Trillium College to pay monthly rent, maintain the premises, and operate its business continuously throughout the term of the lease. When Trillium College vacated the premises, Pickering Square sued for failing to conduct its business continuously.

    The issue before the Court of Appeal was “when is a claim discovered for limitations purposes in the context of a continuing breach of contract?”

    Justice Huscroft’s analysis first assessed the nature of the breach to determine the discovery date. In determining the nature of the breach, the Court outlined three potential breach of contract situations:

    • Failure to perform a single obligation due at a specific time
    • Failure to perform an obligation scheduled to be performed periodically
    • Breach of a continuing obligation under a contract.

    Justice Huscroft held that Trillium College’s breach fell into the third category. The rationale was based largely on contract law principles. Specifically in contract law, upon the default or breach of one party, the innocent party has two options:

    • accept the breaching party’s repudiation and sue for damages; or
    • affirm the contract, in which case both parties are required to fulfill their obligations.

    Justice Huscroft imposed a rolling limitation period, noting that Pickering Square affirmed the contract and each day that Trillium College failed to conduct its business continuously, a fresh cause of action occurred. This entitled Pickering Square to sue for damages for every day from two years prior to the claim being commenced.

    Marvelous Mario’s Inc. v. St. Paul Fire and Marine Insurance Co., 2019 ONCA 635 (“Marvelous Mario”)

    Marvelous Mario involved a bankruptcy of the company Bakemates Group of Companies (“Bakemates”). The appellants claimed for business interruption losses on the grounds that the receiver in bankruptcy stole or mishandled the property of Bakemates.

    On December 28, 2002, the receiver sold the Bakemates Group of Companies’ businesses. It was determined that at this time, the Appellants ought to have been aware of a claim under their insurance policy. However, the trial judge held that because business interruption losses are, by their nature, an ongoing claim, the rolling limitation period applied.

    Justice Hourigan of the Court of Appeal overruled this interpretation, finding that the business interruption losses were not subject to a rolling limitation period.

    Justice Hourigan attempted to clarify the analysis of rolling limitation periods, providing “the question is not whether the plaintiff is continuing to suffer a loss or damage, but whether the defendant has engaged in another breach of contract beyond the original breach by failing to comply with an ongoing obligation. In cases where there have been multiple breaches of ongoing obligations, it is equitable to impose a rolling limitation period” (Marvelous Mario at para 35).

    In Marvelous Mario, the business interruption losses were triggered by a single event, which began the limitation period for the insureds; just because they continued to suffer losses did not mean a new cause of action was created each time they suffered loss.

    Karkhanechi v. Connor, Clark & Lunn Financial Group Ltd., 2022 ONCA 518 (“Karkhanechi v. CCL”)

    Karkhanechi v. CCL involved a dispute regarding compensation upon termination. The Plaintiff (“Karkhanechi”) entered into a Partnership Agreement with the Defendants Connor Clark and Lunn Financial Group (“CCL”), which set out a payment structure for Karkhanechi. Upon termination, Karkhanechi sued, alleging breach of the post-retirement compensation agreement.

    The Court of Appeal attempted to reconcile Marvelous Mario and Pickering. Justice Paciocco began the rolling limitation analysis with first principles, asking “what is the nature of the breach”. To determine the nature of the breach, the question is not whether a continuing loss is suffered but whether the defendant has engaged in another breach of contract beyond the original breach (Marvelous Mario at para 35).

    Justice Paciocco clarified that “the material distinction is therefore between those cases where, in substance, the cause of action alleges a breach that gives rise to continuing loss or damage, and those cases where, in substance, more than one breach is being alleged leading to separate damage claims.” (Karkhanechi at para 27)

    In Karakhanechi, Justice Paciocco held that the breach of post-retirement compensation was a singular breach of the compensation agreement, which resulted in continuous losses. As such, no rolling limitation period applied, and this case was statute-barred.

    Post Trilogy

    This trilogy of cases attempted to clarify the law regarding rolling limitation periods. However, the distinction between whether a breach of contract resulted in continuous losses compared to recurring breaches of contract remained a hotly contested issue in litigation.

    The Court of Appeal was once again faced with the issue of a rolling limitation period in Spina v. Shoppers Drug Mart Inc., 2024 ONCA 642 (“Spina”). In Spina, the plaintiffs (the “Associates”) were franchisees of Shoppers Drug Mart (the “Franchisor”). A contract dispute arose as to whether the Associates or the Franchisor were entitled to professional allowances per new legislation. The Franchisor alleged that the Associates’ claims were statute-barred. The Associates argued that a rolling limitation period ought to apply.

    Justice Thornburn approved of the approach in Karakhanechi v. CCL, citing Richards v. Sun Life 2016 ONSC 5492 (“Richards”). Richards lends significant assistance to reconciling the discrepancies between Marvelous Mario and Pickering Justice Bale clearly sets out when recurring breaches result in a rolling limitation period at para 26. If the facts which give rise to a breach ought to be known by the plaintiff, it would be unfair to require a defendant to litigate those facts for a potentially unlimited time; but when the facts which give rise to a claim appear on a periodic basis, it is not unfair to impose a rolling limitation period and require a defendant to litigate those facts.

    The analysis requires a factual assessment of whether the breach of contract results in continuous breaches which give rise to a new cause of action upon each breach or whether the breach merely creates a continuous loss. In Spina, Justice Thornburn found that, given the trial judge’s findings of fact, the initial breach would have alerted the Associates to the continuous damage claims, thus no rolling limitation period applied.

    Conclusion

    The Court is hesitant to grant a rolling limitation period where continuous damages are evident immediately upon the breach of contract. Where a potential claim for damages exists, it is important to immediately consult a lawyer to preserve your rights.

    If you are in need of guidance as to your rights regarding potential litigation claims and limitation periods, please contact Graeme Oddy at Graeme.Oddy@dsf.theleadshub.biz or by phone at 416-446-5810.

     

    This blog was co-authored by articling student Jason Corry.

    This article is provided for general informational purposes only and does not constitute legal advice. Laws and interpretations can change, and specific circumstances may vary. Readers should consult with qualified legal counsel for advice tailored to their situation.

     

    By AlyssaBlog, Litigation

    Directors, Don’t Panic: How the Due Diligence Defence Can Protect You from Corporate Tax Debts

    Directors of a corporation shoulder significant responsibilities in managing a corporation. The corporate veil will generally shield a director from personal liability by recognizing the corporation as a separate legal entity. However, under both the Income Tax Act and the Excise Tax Act, directors can still be held personally liable for unremitted source deductions or GST/HST owed by their companies.

    If directors can prove they acted with due diligence, they can be protected from being held jointly and severally, or solidarily liable for the corporation’s outstanding tax liabilities.

    The Legal Framework of the Due Diligence Defence

    Section 227.1(3) of the Income Tax Act and section 323(3) of the Excise Tax Act both set out the due diligence defence: directors will not be personally liable if they exercised the degree of care, diligence, and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. Courts have interpreted this standard through a consistent line of cases.

    The burden of proof lies squarely on the director to demonstrate due diligence on a balance of probabilities. The defence is assessed on an objective standard, based on factual, detailed, and credible evidence of the steps taken to prevent the default.

    The defence must be based on preventative, not reactive measures. Directors who have taken active steps to avoid non-compliance will be excused from personal liability. Efforts made after the default has already happened will not excuse the non-compliance. Directors must act when they first become aware that the corporation is facing financial difficulties.

    Courts have held that reliance on experts, such as accountants or lawyers, may form part of a due diligence process, but directors cannot ultimately abandon their responsibilities to the corporation and play a passive role by relying on others’ assurances without independently confirming that statutory remittances are being made.

    A director’s sophistication or business experience can increase the objective standard expected of them. Where the director is a new business owner or Director, the Courts will grant a measure of flexibility, evaluating what a reasonably prudent person with similar experience could have done in the same situation.

    Although the Income Tax Act and Excise Tax Act refer specifically to “directors,” personal liability can also extend to “de facto directors”. These are individuals who, while not formally appointed, effectively act in a director capacity.

    Hamad v the Queen, 2019 TCC 137: A Blueprint for the Successful Use of the Due Diligence Defence

    In this case, Hamad was the CEO and director of RER Hydro Ltd, a company developing water-powered turbine technology in Quebec. This company received major funding from the Government of Quebec. In 2014, after a change of government, Quebec terminated its funding commitments. As a result, the company was insolvent, eventually declaring bankruptcy in 2015.

    The CRA assessed Hamad personally for over $15,000.00 in unremitted employment insurance contributions, insurance contributions, penalties, and interest for the period of June-August 2014. In response, Hamad raised the due diligence defence.

    Mr. Hamad’s actions showed what genuine due diligence looks like in practice. When the company’s funding collapsed, he called an emergency shareholders’ meeting to be transparent about the financial crisis and propose solutions. He pushed for an additional $3.1 million in shareholder investment, sought restructuring advice, and hired a consultant to help stabilize cash flow and manage financial planning. Further, he personally invested more than $4 million into the company to keep it afloat. Eventually, he made the difficult but responsible decision to lay off employees and seek protection under the Companies’ Creditors Arrangement Act to manage the company’s debts. In the end, management sold the firm’s assets to pay secured creditors, including the CRA.

    The court found that this was sufficient to demonstrate that Hamad took every reasonable step to prevent losses and act in good faith. Because the default stemmed from unforeseeable external factors, Hamad actively sought solutions and documented his actions, and because he was able to show continuous, good-faith oversight and preventative engagement, even if the company ultimately collapsed, the Court agreed he had met the requirements for the due diligence defence.

    Hirjee v. the King, 2023 TCC 4: Where the Due Diligence Defence Falls Short

    In this case, Hirjee was the sole director of 1621844 Alberta Inc., a company that operated 4 Bell Mobility Retail Stores in Alberta. The company ran into financial difficulties after Bell Mobility changed its commission structure, which reduced revenues and caused operating costs to exceed profits. Despite hiring a bookkeeper and external accountant to handle filings, the CRA still held Hirjee personally liable for approximately $375,000 in unremitted GST/HST.

    Hirjee argued he should be relieved of personal liability because he exercised due diligence by retaining a qualified professional to manage tax filings, and because his ability to act had been severely impaired by mental health challenges during the relevant assessment period. He argued that these factors satisfied his due diligence when measured against what a reasonably prudent person would have done in comparable circumstances.

    The Tax Court of Canada found that while hiring a bookkeeper and accountant were relevant to the analysis, it was not sufficient to establish due diligence. The Court recognized that serious mental illness could excuse liability when a director is incapable of understanding and discharging their duties. However, Hirjee’s condition did not meet that threshold. He was still capable of overseeing the business, signing filings, and taking active steps to prevent non-remittance.

    The Court emphasized that directors must take positive, preventative action to ensure statutory remittances are made, not merely rely on others’ expertise. Hirjee had exclusive signing authority over the company’s bank account, yet failed to delegate authority, appoint a replacement director, or establish a separate remittance account to ensure GST/HST funds were protected once he knew the business was struggling and that his mental health was declining. In the Court’s view, he failed to exercise the care, diligence, and skill of a reasonably prudent person in comparable circumstances. The due diligence defence, therefore, failed.

    The decision reaffirms that the due diligence standard is objective. Personal attributes such as inexperience, ignorance, or diminished capacity do not excuse a director’s obligations unless they render the individual truly incapable of fulfilling them.

    Conclusion

    The due diligence defence is a narrow safeguard against personal tax liability. It protects only directors who take concrete, preventative steps, not those who rely passively on others. Hamad shows how proactive leadership can succeed, while Hirjee shows that delegation without oversight is not enough. Diligence means action: stay engaged, anticipate risks, and document efforts to stay compliant.

    If you are in need of a tax law lawyer, please contact Graeme Oddy at Graeme.Oddy@dsf.theleadshub.biz or by phone at 416-446-5810.

     

    This blog was co-authored by articling student Mariem Naem.

    This article is provided for general informational purposes only and does not constitute legal advice. Laws and interpretations can change, and specific circumstances may vary. Readers should consult with qualified legal counsel for advice tailored to their situation.
    By AlyssaBlog, Tax
    Young adult woman testifying in courtroom, standing in front of judge, gesturing with hand while speaking, legal proceeding taking place in judicial setting

    New Ontario Small Claims Court Monetary Limit

    As of October 1, 2025, the monetary limit for claims brought before the Ontario Small Claims Court will see a substantial increase, a change that will directly affect future litigants. Currently, claims can be commenced in Small Claims Court for amounts up to $35,000.00. Appeals from Small Claims Court to the Divisional Court are permitted only where the amount in dispute exceeds $3,500.00. However, beginning October 1, 2025, both limits are set to increase to $50,000.00 for new claims and $5,000.00 for appeals.

    What Does This Change Mean For You?

    Small Claims Court is commonly referred to as the “People’s Court.” This term has been used as Small Claims Court provides an accessible system to individuals with smaller monetary disputes. It contains simple procedural rules, lower costs, and theoretically faster timelines, which makes it a practical alternative to the Superior Court of Justice. In accordance with these advantages, the upcoming increase in monetary limits will further enhance the ability of the courts in Ontario to provide access to the justice system in a convenient, effective manner, as well as ensure claims under $50,000 can be litigated more cost-effectively.

    This increased monetary limit ought to mean that the burden on the Superior Courts of Justice should be slightly eased, which should enhance the efficiency of Ontario’s justice system.

    Practical Implications for Claimants

    When a litigant experiences a loss of $45,000.00, in order to keep legal fees within reason, the litigant may elect to commence the claim in Small Claims Court, thereby electing to reduce the claim by $10,000 for the sake of cost effectiveness and efficiency.

    With the revised monetary threshold now in effect as of October 1, 2025, that same litigant would now be able to advance their entire claim. Of course, if the claim is over $50,000, a litigant would have to conduct the cost-benefit analysis of commencing a claim in Small Claims Court versus the Superior Court of Justice.

    With this new monetary increase, litigants will have the option to wait until October 2025 to file and serve their claim, amend an existing Small Claims proceeding, or alternatively transfer their existing claim from the Superior Court of Justice to Small Claims Court.

    Amending Existing Claims  

    If, as a litigant, you already filed and served a claim in Small Claims Court, you may be able to amend the claim filed after October 1, 2025. However, amending the claim will only be successful if:

    1. the amended claim is served on all parties, including any party noted in default; and
    2. the amended claim is filed and served at least 30 days before the originally scheduled trial date, unless the court, on motion, allows a shorter notice period or a clerk’s order permitting the amendment is obtained.

    If these requirements are not met, it will be unlikely that amending your current claim to fit within the new monetary limit will be successful.

    Transfer Your Existing Claim

    If you filed and served your claim with the Superior Court of Justice because your claim exceeded the current Small Claims limit ($35,000.00), you may be able to transfer your proceeding to the Small Claims Court as of October 1, 2025, provided it falls within the new monetary limit of $50,000.00.

    In order to transfer a claim successfully, important procedural steps are required to be taken:

    1. If all parties to the lawsuit agree to the transfer, you must:
      1. receive written consent from all parties;
      2. complete a requisition (Form 4E);
      3. file the requisition and written consent from all parties with the Superior Court of Justice; and
      4. pay the required fee.
    2. If all parties do not agree to the transfer, you can:
      1. bring a motion to the Superior Court of Justice to ask the court for permission to do so. Motions are costly, and you will have to weigh the costs of the motion vs the cost savings of proceeding to Small Claims Court, as well as the time and the likelihood of success of such a motion.

    While these changes are definitely for the better in making the courts more accessible to the people, the transition will undoubtedly have an impact on litigants in the short term. While litigants can and often retain counsel for Small Claims Court matters, the People’s Court is designed so that parties can attend as self-represented litigants to ensure that they are garnering the highest possible amounts for their claims, assuming their claims are successful.

     

    This blog was co-authored by articling student Adriana Piccolo.

    “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.”
    By AlyssaBlog, Litigation