Nagel’s Debt Review v. Douglas, 2019 SKCA 16

Court of Appeal for Saskatchewan Docket: CACV3103 Citation: Nagel’s Debt Review Inc. v Mosiuk , 2019 SKCA 16 Date: 2019-01-31 Between: Nagel’s Debt Review and Douglas Martin Nagel Appellants (Defendants/Applicants) And Eddy Larry Mosiuk and Midtown Interiors Ltd. Respondents (Plaintiffs/Respondents) Before: Jackson, Ottenbreit and Herauf JJ.A. Disposition: Appeal dismissed Written reasons by: The Honourable Madam Justice Jackson In concurrence: The Honourable Mr. Justice Ottenbreit The Honourable Mr.

Justice Herauf On Appeal From: 2017 SKQB 173 , Regina Appeal Heard: June 15, 2018 Counsel: David Barth for the Appellants Russell Peet for the Respondents Jackson J.A. I. Introduction [ 1 ] This is an appeal from a decision declaring that land and fire insurance proceeds, arising from the destruction of a building, are the property of the land’s prior registered owner: see Mosiuk v Nagel ’s Debt Review Inc ., 2017 SKQB 173 , 79 RPR (5th) 44 [ Trial Decision ].

The property had been transferred to the present registered owner to avoid the effects of a municipal order, which could have led to the destruction of the building. The trial judge ordered that the land be conveyed and the fire insurance proceeds paid to the prior registered owner. Among the issues raised by this appeal, the principal issue concerns whether equity can come to the aid of the prior registered owner. [ 2 ] For the reasons that follow, I would dismiss the appeal. II. Background [ 3 ] The documents considered in this appeal are in the names of Midtown Interiors Ltd. and Nagel’s Debt Review Inc.

Eddy Mosiuk is the sole shareholder and director of Midtown Interiors. Doug Nagel is a director and the controlling shareholder of Nagel’s Debt Review. In this judgment, I will refer to Mr. Mosiuk and Midtown Interiors, collectively, as the respondents and Doug Nagel and Nagel’s Debt Review, collectively, as the appellants, and to the parties individually, where greater clarity is required. [ 4 ] Some facts are uncontroverted. Up until February 19, 2009, Midtown Interiors was the registered owner of a lot with a building affixed to it [the Land] in a southeastern Saskatchewan town [Town].

In a letter dated February 5, 2009, the Town wrote to Midtown Interiors, care of Mr. Mosiuk, saying that (

a) the Town would be making arrangements to demolish the building as of March 5, 2009, (

b) the Town would remove and store the contents of the building, if they were not removed by that date, and (

c) all costs of demolition, storage and removal would be the responsibility of Midtown Interiors. A remedial order had been issued in 2007 [Order to Remedy], but it was not registered on the certificate of title to the land. [ 5 ] On February 19, 2009, Midtown Interiors entered into three agreements with Nagel’s Debt Review: a “Purchase and Sale Agreement”, a “Promissory Note” and a “Lease” [the Transaction Documents]. The Transaction Documents arranged for the following: (

a) the purchase price of the Land was $30,000, which was to be secured with a $10,000 down payment; (

b) through his wife, Mr. Mosiuk extended Mr. Nagel the $10,000 necessary for the down payment, which was to be repaid to Mr. Mosiuk’s wife in five yearly instalments of $2,000; (

c) the balance owing ($20,000) was to be paid by Nagel’s Debt Review by way of annual, interest-free installments of $4,000, which were due on February 28 of each year; (

d) upon paying the $10,000 down payment, Midtown Interiors transferred the Land to Nagel’s Debt Review; (

e) Nagel’s Debt Review, in turn, leased the Land back to Midtown Interiors, which was to pay its rent on February 15 of each year; (

f) in accordance with the lease, Midtown Interiors would pay Nagel’s Debt Review $500 per month in rent and reimburse

Nagel’s Debt Review its yearly fire insurance premiums, property taxes and any income tax incurred for rental income derived from the Land; (

g) Midtown Interiors was responsible for utilities and the cost of restoring the building; and (

h) Mr. Nagel was reimbursed the legal fees incurred by him in relation to the transaction and was paid $750 for his services. The trial judge found that the effect of these agreements was to keep Nagel’s Debt Review completely “whole” ( Trial Decision at para 49). It should be noted that Mr. Mosiuk was the sole signatory on behalf of Midtown Interiors and Mr.

Nagel was the sole signatory for Nagel’s Debt Review. [ 6 ] In handwritten notes, bearing the date of February 18, 2009, the following phrase appears: “It is understood and agreed the the [ sic ] Vendor has the right to purchase the said property at any time during the term of the [unintelligible] agreement at an agreed price to be determined”. In the margin, beside the phrase, is a note that says, “Not Necessary”.

None of these words were carried forward into the Transaction Documents. [ 7 ] In keeping with the Transaction Documents, on February 19, 2009, the Land Titles Registry issued a title to the Land in the name of Nagel’s Debt Review. Thus, the Land, which had been subject to the Order to Remedy (directed at Midtown Interiors), was now in the name of Nagel’s Debt Review. [ 8 ] On March 2, 2009, Mr.

Nagel, signing as president of Nagel’s Debt Review, wrote to the Town as follows: Re: 218 Third Avenue South – Old Community Hall Building: Thank you for your response to my Fax dated February 26th, 2009, and for the attached documents. Was it your intention that the ORDER to Remedy was to apply to the new owner, Nagel’s Debt Review Inc. I was offered an opportunity to make an investment. On February 12, 2009, for my protection I investigated the status of Midtown Interiors Ltd. First at the Corporations Branch and found the Corporation to be an active corporation.

Secondly, at the Information Services Corporation of Saskatchewan (Land Titles), I viewed the Registered Interest: None . I was satisfied that the Property was free and clear of any and all encumbrances. February 19th, 2009, Nagel’s Debt Review Inc. the (Purchaser) entered into a PURCHASE AND SALES AGREEMENT with Midtown Interiors Ltd. the (Vendor). This caused the Transfer of the Title, to be Registered, free and clear of all encumbrances. Nagel’s Debt Review Inc., was successful in obtaining a 5 year lease for this property.

I am concerned with the attached documents, the ORDER and other concerns that the [Town], may have. It is my intention to be a good Corporate citizen and to comply [with] The Municipalities Act and The Municipalities Regulations , and the Bylaws of the [Town]. To that end I acquired a copy of the Act and Regulations. On reviewing the Act I have taken particular notice and interest in Section 364 (1) to (6) Order to remedy contravention: Subsection 364 (5) “A municipality may cause an interest based on an order pursuant to this

section to be registered in the Land Tiles Registry against the title to the land that is the subject of the order.” There is no ORDER registered, therefore the ORDER TO REMEDY , issued to Midtown Interiors c/o Larry Mosiuk, does not flow to the new owner , Nagel’s Debt Review Inc. It is my desire to have open communications with all members of the Town’s Administration. I would like you to provide me with a list of all members so that when required I can communicate with those responsible.

I was provided with a copy of the TAX NOTICE # 146735 TOTAL TAXES DUE $1,506.40 with discount of $75.32 – Net Taxes Due $ 1,431.08, a Money Order is submitted herewith to pay such taxes. It is my intention to be in [Town] on Tuesday March 3rd, 2009; I will bring with me the money order for the payment of taxes. I will have other concerns that I wish to address, to my satisfaction and that of the [Town]. (Emphasis in original) [ 9 ] For reasons that are unexplained in the evidence, the Town did not proceed to enforce its bylaws with respect to the Land and appeared to accept the situation until 2012.

In 2012, the Town, again, issued another order to remedy. [ 10 ] Meanwhile, money changed hands between Midtown Interiors and Nagel’s Debt Review, according to their various agreements, with the latter paying for property insurance directly with his insurer, although by using money that had come from Mr. Mosiuk. It would appear that the post-dated cheques stipulated in the lease were never delivered because Mr.

Mosiuk did not make the February 15, 2013, payment, which would have included the fire insurance, property tax and tax adjustments. [ 11 ] On August 4, 2013, the building on the Land burned to the ground. [ 12 ] On October 30, 2013, the respondents commenced an action against the appellants. The substance of the claim is as follows: 7.

On 19 February 2009 the Defendant, NAGEL’S DEBT REVIEW INC. became registered owner of the property as a result of a Land Transfer instigated and devised by the Defendant, DOUGLAS MARTIN NAGEL, which land transfer occurred without the exchange of any actual consideration between the Seller and the Buyer. 8.

The Plaintiffs say that the intention of the Plaintiffs and the Defendants on 19 February 2009 and at all material times was the Transfer of Bare Legal Title by Plaintiff MIDTOWN INTERIORS LTD. to the Defendant NAGEL’S DEBT REVIEW INC. 9 The Plaintiffs say the Defendant, NAGEL’S DEBT REVIEW INC. has had no Beneficial Interest in the property at any material time and that the Plaintiffs, MIDTOWN INTERIORS LTD. and/or EDD[Y] LARRY MOSIUK are the beneficial owners of the property, NAGEL’S DEBT REVIEW INC. holding Bare Legal Title for the benefit of the Plaintiffs who are the beneficial owners of the property.

10. The Plaintiffs or either of them have remained in uninterrupted possession of the subject premises used by the Plaintiffs for commercial storage from 19 February 2009 up to on or about Sunday, 4 August 2013 when the premises was destroyed by fire. 11. Subsequent to the said fire, the Defendants have refused or neglected to confirm that the Defendants have no Beneficial Interest in the property and further the Defendants have claimed sole entitlements to the property and to the proceeds of the fire insurance to the exclusion of the proper beneficial owners, the Plaintiffs. 12.

Further and in the alternate, the Plaintiffs plead that the Defendants, having a fiduciary obligation to the Plaintiffs, misrepresented to the plaintiffs the full effect and consequences of the Plaintiffs transfer of legal title to the Defendant, NAGEL’S DEBT REVIEW INC. including failing to advise the Plaintiffs to document in writing the Beneficial Interest relied upon and to obtain independent Legal advice. 13.

The said misrepresentation and the consequences arising therefrom in all of the circumstances, including the client/advisor relationship of the Parties constitutes, a breach of trust, willful default and/or undue influence amounting to a fraud upon the Plaintiffs by the Defendants. [ 13 ] In their prayer for relief, the respondents sought the following: 14. The Plaintiffs therefore claim:

a) a Declaration that the Defendant, NAGEL’S DEBT REVIEW INC. has no Beneficial Interest in the property … nor any Beneficial Interest in the proceeds of the insurance payable upon the loss of the property;

b) a Declaration that the Plaintiffs are the beneficial owners … and are entitled to be registered as the legal owner;

c) Such further and other relief as Counsel may advise and this Honourable Court deem just;

d) Costs. [ 14 ] The appellants defended against the claim, asserting that what had taken place was a legitimate business transaction instigated and controlled by the respondents and the terms found in the Transaction Documents. In specific terms, their pleadings provided as follows: 3. With regard to Paragraph 8 of the Statement of Claim, the Defendants state that there was never any discussion or intention of a bare trust with respect to the purchase transaction. … 6.

The Defendants deny the allegations contained in Paragraph 13 of the Statement of Claim. 6.1 The Defendants Douglas Martin Nagel and Nagel’s Debt Review Inc. denies that either of them ever had a fiduciary relationship with the Plaintiffs with respect to the disputed land transfer or any other land transfer. 6.2 The Defendants Douglas Martin Nagel and Nagel’s Debt Review Inc. denies that either of them ever had a fiduciary relationship with the Plaintiffs with respect to the disputed contract of fire insurance or any other contract of fire insurance. 6.3 The Defendants Douglas Martin Nagel and Nagel’s Debt Review Inc. plead and rely on The Statute of Fraud, 1677 , 29 Cha II, c. 3. [ 15 ] With respect to the insurance on the destroyed building, Nagel’s Debt Review was able to make a successful claim.

These monies were also claimed by respondents. After a series of applications, the amount of the insurance, notably $37,000, was paid into court. [ 16 ] The appellants originally applied, pursuant to Rule 7-2 of The Queen’s Bench Rules , for a

summary judgment dismissing the claim in its entirety. In the alternative, they sought a declaration of a proprietary interest in the insurance proceeds and an order dismissing the claim against Mr. Nagel personally. The trial judge, quite appropriately, determined that, given the divergence between the parties as to what their intentions were in 2009, oral testimony would be required: see Mosiuk v Nagel ’s Debt Review , 2016 SKQB 80 . A thorough review of the Transaction Documents is contained in that decision. III. Decision Following Trial [ 17 ] The trial judge cast the first issue as follows: “Did Mr.

Nagel hold the land in trust for Mr. Mosiuk either intentionally or by operation of law?” ( Trial Decision at para 45). [ 18 ] In answering this question, the trial judge made these findings regarding credibility and the parties’ intentions when they entered into the transactions in 2009: [56] Mr. Mosiuk and Mr. Nagel offered diametrically different

interpretations about how and why title conveyance came about. Mr. Mosiuk claims the parties intended to create a trust and that Mr. Nagel simply held bare legal title for him until things blew over. Mr. Nagel, in contrast, contends the parties’ intentions were purely contractual and the embodiment of a business deal. [57] Where their evidence differs, I accept the evidence of Mr. Mosiuk . His evidence was straightforward and his explanations were plausible in the context of the whole of the evidence. I find as fact that Mr. Mosiuk approached Mr.

Nagel for advice and a creative solution to the looming demolition deadline . I accept that Mr. Nagel conjured up the plan to transfer title to thwart the Town’s pending

actions and that they worked cooperatively to put Mr. Nagel’s plan into place . I accept that the parties intended for Mr. Nagel to hold the land in trust for Mr. Mosiuk in order to buy some time for Mr. Nagel to build a working relationship with the Town and for Mr. Mosiuk to devise a plan of action with regard to the dilapidated building . I also accept there was a promise to reconvey the land to Mr. Mosiuk which was never honoured by Mr. Nagel . [58] While I do not condone the plot hatched by the two of them to defeat the Town’s bylaw enforcement measures, I nonetheless find Mr.

Nagel’s version of affairs, particularly an outcome which saw him acquire title at no personal cost, to be implausible . Under cross- examination, Mr. Nagel was unable to provide any credible explanation for some key points of evidence. Where he offered conflicting evidence, I find Mr. Nagel’s evidence inconsistent with the sequence of events and that it, on the whole, lacks a ring of truth . (Emphasis added) [ 19 ] The trial judge cast Mr. Nagel as the instigator and mastermind: [59] My findings are supported by the following: • Based on their frequent discussions, Mr.

Nagel was well aware of the problems and relationship issues Mr. Mosiuk had with the Town. In fact Mr. Nagel testified that he thought the Town had treated Mr. Mosiuk unfairly. Apart from evidence about the demolition order for [the Land], there was no other evidence to support any alternate reason for the animus between the Town and Mr. Mosiuk. • Even though Mr. Nagel was considered to be a shrewd businessman, he bought [the Land] sight unseen and without exercising any due diligence apart from searching the title. Mr. Nagel was an experienced businessman.

He would have known one of the first steps taken in any land transaction is to correspond with the municipal body for tax information and to inquire about the existence of possible municipal orders. That he did not do so until after title transferred is telling. • Cobbled together within the span of 10 days, the deal from start to finish was clearly rushed. Mr.

Mosiuk’s insistence that it be transferred quickly should have caused a prudent purchaser to make appropriate inquiries. • Title was transferred before the full purchase price was paid, and more importantly, without the registration of an interest against title to protect Mr. Mosiuk for the unpaid balance. • Mr. Nagel did not invest any of his own funds in the deal. Mr. Nagel was made whole by Mr. Mosiuk in all respects. Until the fire, he was not out of pocket a single cent. • On expiration of the lease and concurrent payment of the full purchase price (fully funded by Mr. Mosiuk), Mr.

Nagel would notionally have held the land free and clear, yet Mr. Nagel offered no explanation as to why Mr. Mosiuk would have gifted him the land. • If Mr. Nagel had only learned on February 26, 2009, of the Town’s intention to demolish the building (i.e., after title was transferred into his company’s name), one would have expected some measure of consternation and displeasure with Mr. Mosiuk, yet this revelation did not seem to cause Mr. Nagel the slightest concern. • Mr. Nagel had a reputation for being shrewd and able to find a loophole in regulatory enforcement measures. This is the very reason Mr.

Mosiuk turned to him. [ 20 ] In the result, the trial judge made two critical findings of fact (at para 60): (a) “the parties intended for Mr. Nagel to hold the land in trust for Mr. Mosiuk in order to defeat the Town’s bylaw enforcement measures”; and (

b) Mr. Nagel promised “to transfer back the title at some future point in time”. [ 21 ] With that, the trial judge determined that “[t]he circumstances and conduct of the parties viewed as a whole supports a finding of an express trust”. [ 22 ] With this result, the trial judge did not need to consider whether the actions also gave rise to a voluntary transfer resulting trust. In that regard, she wrote, “I find it unnecessary to address any of Mr. Mosiuk’s alternate claims” (at para 83). IV. Settling the Issues [ 23 ] The appellants put these points in issue: (

a) the trial judge erred by finding an express trust in light of the appellants’ pleadings; (

b) the trial judge erred as a matter of law by finding an express trust; (

c) the trial judge could not find a voluntary resulting trust when the respondents did not come to the Court with clean hands;

(

d) regardless of what finding the trial judge made with respect to the Land, none of her findings extend to the insurance monies;and (

e) the trial judge erred by piercing the corporate veil so as to permit a suit against Mr. Nagel personally. [24] While the respondents did not cross-appeal, they assert that there is an error in the trial judge’s calculations with respect to theamount that should have been transferred to them. This can be considered as point (

f) in the above list of issues. [25] Underlying the appellants’ issues is a direct challenge to the trial judge’s findings regarding what the parties intended whenthey entered into the Transaction Documents. As I will explain more fully in these reasons, much of the resolution of this appeal turns onthis issue. I will consider it first. V. Analysis A.

Did the trial judge err when she determined that the parties intended thatno benefit would be conferred upon the appellants? [26] The appellants acknowledge the case law regarding the standard of review applicable to findings of fact, but they submit thatthe review of the trial judge’s findings of credibility and fact in this appeal is one of correctness. They make this submission on the basisthat to ignore relevant evidence gives rise to a question of law. Correctness as a standard of review on this basis exists in other areas oflaw, but does not apply here.

Simply put, the current law requires an appellate court to review findings of fact made by a trial judge, in acivil matter, on a standard of palpable and overriding error: Benhaim v St–Germain, 2016 SCC 48 at paras 38–39, [2016] 2 SCR 352[Benhaim]; Nelson (City) v Mowatt, 2017 SCC 8 at para 38, [2017] 1 SCR 138; and Canada (Attorney General) v Fontaine, 2017 SCC47 at para 35, [2017] 2 SCR 205.

Ignored evidence could lead to the discovery of a palpable and overriding error but, in my view, nosuch error was made in this case. [27] In reality, the appellants ask this Court to review the trial judge’s findings of fact and either come to our own conclusion onthe matters in issue or order a new trial. In support of their arguments, the appellants have engaged in an extensive review of theevidence, directing the Court’s attention to the evidence that could lead a trier of fact to conclude that the transfer of the Land was alegitimate business transaction intended to benefit them.

Significantly, the primary source of this evidence is Mr. Nagel. [28] One finding of fact underpins the rest: “the parties intended for Mr. Nagel to hold the land in trust for Mr. Mosiuk in order todefeat the Town’s bylaw enforcement measures” (Trial Decision at para 60). The issue for this Court is whether this constitutes apalpable and overriding error of fact. [29] Applying the Supreme Court’s recent expression of what palpable and overriding error means, there is no basis upon whichthis Court can intervene and accept the appellants’ view of the evidence.

I can find no obvious error or “error that goes to the very core ofthe outcome” (Canada v South Yukon Forest Corporation, 2012 FCA 165 at para 48 (leave to appeal refused, ),which, in Benhaim (at para 38), the Supreme Court recently affirmed as one way to conceptualize the palpable and overriding errorstandard. [30] The appellants claim that when they bought the Land they relieved the respondents from their obligations to the Town. Theobligation to clean up the building and avoid its demolition had been estimated at between $10,000 and $20,000.

According to theappellants’ version of the events, this would mean that the respondents gave up the value of the land, estimated at $30,000, to avoid thepayment of between $10,000 and $20,000, and kept the obligation of restoring the building. This is the appellants’ theory and it is notsupported by the evidence.

Even apart from any consideration of the standard of appellate review of the facts, it would strain credulity toaccept this version of the evidence. [31] The trial judge, in my view, carefully reviewed the evidence of the individual parties, and indeed did so at length, only toconclude that the facts, on balance, supported the version of events as put forward by the respondents. [32] All of the remaining grounds of appeal must be considered in light of the clear findings of fact and credibility that the trialjudge made against the appellants with respect to the real reason the land was transferred and why the Transaction Documents werestructured as they were.

B. Did the trial judge err by finding an express trust in light of the appellants’pleadings? [33] The appellants argue that the trial judge erred by finding a trust when the statement of claim did not assert a claim of trust or abreach of trust with respect to either the Land or the insurance proceeds. [34] While the respondents’ pleadings do not claim that the Land was held in trust, and they do not claim a breach of trust hadoccurred, they do assert that Nagel’s Debt Review holds only the “bare” legal title.

Other language could have been used and may havebeen preferable, but such words are often employed to assert a claim on behalf of the beneficiary of a trust. [35] Clearly, the appellants understood that the issues in this case would revolve around the assertion of a trust. Their primary legal

defence was that the respondents could not bring themselves within the Statute of Frauds, 1677, 29 Cha 2, c 3, which led the trial judgedirectly to the question as to whether and how a trust could be proven in the absence of a written document.

The only aspect of therespondents’ case that did not take the form of writing was their claim that Nagel’s Debt Review held the land for the respondents’benefit. [36] By virtue of their own pleadings, and the respondents’ arguments, the appellants must be taken to have understood fully thatthe respondents were claiming not only an express trust but a resulting trust as well. As proof of this, the appellants’ approach was todeny the existence of a trust, saying, in their pretrial brief, “the trust, if it is held to be a trust, is a resulting trust”.

They also asserted thatthe trust could not be enforced because “it was created to avoid creditors”. In that regard, they relied upon Roynat Inc. v United RescueServices Ltd. (1982), (MB CA), 18 Man R (2d) 54 (CA) [Roynat]; and Sodhi v Sodhi, (BC SC),[1998] 10 WWR 673 (BCSC) [Sodhi] (aff’d (1998), 23 ETR (2d) 235 (BCCA)), in support of the proposition that the respondents cameto the Court with unclean hands because they had transferred the land to avoid complying with the Town’s Order to Remedy.

In bothRoynat and Sodhi, the courts were required to consider whether a resulting trust had arisen on the facts. [37] Finally, at trial, the appellants asserted that The Land Titles Act, 2000, SS 2000, c L-5.1, was a complete answer to therespondents’ claim.

The reason for this assertion could only be that, according to the appellants, the trust had not been registered andcould not be registered under The Land Titles Act, 2000 – lending further force to the claim that the appellants understood a trust hadbeen claimed and, therefore, were not prejudiced by the pleadings. [38] In their pretrial brief, the respondents, on the other hand, made submissions regarding the following matters: (

a) breach of fiduciary duty; (

b) breach of an express trust; (

c) breach of a resulting trust; (

d) part performance could overcome the lack of writing in support of a trust; (

e) fraud on the part of the appellants could overcome the lack of writing in support of a trust; and (

f) a claim for specific performance. In spite of these submissions, the appellants took no issue with the state of the respondents’ pleadings at trial. Their pretrial brief does notmention the issue. [39] Thus, I give no effect to the argument that the pleadings did not claim an express trust, a resulting trust or a claim to theinsurance monies. The pleadings sufficiently ground a claim with respect to these matters and the appellants were not prejudiced by therespondents’ arguments. C.

Did the trial judge err by finding an express trust? [40] The appellants raise a number of arguments challenging the trial judge’s conclusion that the respondents could claim thebenefit of an express trust. Those arguments, in point form, are as follows: (

a) the certainty required by the law of trusts does not permit a finding of an express trust in this case; (

b) a claim to have the Land returned is inconsistent with the notion of an express trust and contrary to the case law; (

c) an express trust must be in writing; (

d) apart from any consideration of the Statute of Frauds, a lack of any reference in the Transaction Documents to the trustshould have compelled the result that the parties did not intend to create an express trust; (

e) The Land Titles Act, 2000 (ss. 13, 23, 107, 109 and 110), prevents the respondents from successfully asserting a trust; (

f) the respondents could not rely on part performance to satisfy the writing requirements of the Statute of Frauds because therewas no evidence supporting such a claim; (

g) the respondents could not rely on part performance to satisfy the writing requirements of s. 7 of the Statute of Frauds as partperformance can only be used to shore up the lack of a writing requirement under s. 4 of the Statute of Frauds; and (

h) the respondents could not rely on the equitable doctrine of part performance as they did not come to the Court with cleanhands. [41] The trial judge comprehensively and correctly addressed the six points (a)–(

f) above. In my view, the trial judge did notcommit any of the errors alleged when she found an express trust. I would adopt her reasons completely. Points (

g) and (

h) requirefurther analysis. [42] The respondents resist the arguments described in points (

g) and (h). In the alternative, they submit that the trial judge’s resultcan be sustained on two additional bases: (

a) the Statute of Frauds cannot be used to defeat fraud and “it is a fraud for a person to whom land is conveyed as a trustee, andwho knows it was so conveyed, to deny the trust and claim the land as his own” (Rochefoucauld v Boustead (1896), [1897] 1 Ch 196 at

196 (Eng CA) [Rochefoucauld]); and (

b) the unchallenged fact of a gratuitous transfer for which no gift was intended gives rise to a voluntary transfer resulting trust. [43] With respect to the claim that the respondents cannot seek an equitable remedy from the courts, counsel for the respondentssubmits the following: “In the present case, unlike any other case I have encountered giving effect to ‘the clean hands doctrine’, thetransferee (the appellant Nagel) has been found in the evidence at trial to have been the originator and perpetrator of the inventedtransfer”.

Further, the respondents assert that the doctrine of clean hands cannot be applied solely against them. To do so, would be to“reward” the appellants. [44] Arising from these arguments, I will now consider these specific questions: (

a) Did the trial judge err by permitting the respondents to rely on part performance to satisfy the writing requirements of s. 7 ofthe Statute of Frauds? (

b) In any event, was it open to the trial judge to find that the fraud exception can overcome the lack of a writing under theStatute of Frauds? (

c) In any event, was it open to the trial judge to find the respondents could claim the benefit of a voluntary transfer resultingtrust? (

d) Applying the clean hands doctrine, did the trial judge err by allowing the respondents to claim equitable relief? (

e) Should a new trial be ordered to permit further consideration of the last three questions? a. Did the trial judge err by permitting the respondents to rely on part performance to satisfy thewriting requirements of s. 7 of the Statute of Frauds? [45] As I understand the appellants’ arguments, they assert that part performance can be relied on to satisfy the writingrequirements of s. 4 of the Statute of Frauds, but cannot be relied on for the purposes of s. 7 of that statute. The modern-day versions ofthese two provisions read as follows: 4.

No action shall be brought … upon any contract or sale of lands, tenements or hereditament or any interest in or concerning them …unless the agreement upon which such action shall be brought, or some memorandum or note thereof shall be in writing and signed bythe party to be charged therewith, or some other person thereunto by him lawfully authorized. 7. … all declarations or creations of trusts or confidences of any lands, tenements or hereditaments, shall be manifested and proved bysome writing signed by the party who is by law enabled to declare such trust, or by his last will in writing, or else they shall be utterlyvoid and of none effect. [46] The appellants rely on s. 7, which declares all unwritten trusts “utterly void and of none effect”, which means, according to theappellants, that a court cannot look to part performance to overcome the lack of a writing requirement because to do so is contrary to theexpress words of s. 7. [47] To ensure the proper application of the Statute of Frauds, three exceptions to avoid the strictures of that statute have emerged(see, generally, Saskatchewan, Law Reform Commission of Saskatchewan: English Statutes Project, The Statute of Frauds: Report to theMinister, June 1996 at 13–18 [Frauds Report]): (

a) the first exception – the doctrine of unenforceability, i.e., an unwritten agreement may be unenforceable in the hands of aplaintiff, but a defendant may be able to resist a claim and be granted a remedy; (

b) the second exception – the doctrine of part performance can overcome the lack of writing; and (

c) the third exception – the holder of an unwritten express trust cannot deny the claim of a beneficiary (this is also referred to asthe fraud exception to the Statute of Frauds). [48] The trial judge did not rely on the first exception. She recognized that an oral agreement cannot be used to bring an action torecover the Land, but it can be used to defend against an action only, see Semchyshen v Semchyshen, 2016 SKCA 108 at paras 60 and 61,402 DLR (4th) 623 [Semchyshen].

Rather, her judgment rests on part performance to prove the existence of an express trust. [49] With respect to the second exception, the trial judge applied Matovich Estate v Matovich, 2015 SKCA 130, 472 Sask R 71[Matovich], and concluded that the doctrine of part performance can be relied upon if subsequent conduct by the parties unequivocallypoints to some dealing with the land which is alleged to have been the subject of the oral agreement.

In Matovich, Ryan-Froslie J.A.reviewed the doctrine of part performance: [19] In equity, part performance of a parol contract concerning land was held to take it outside the operation of s. 4 of the Statute ofFrauds. The Earl of Selborne described the doctrine of part performance at p. 479 of Maddison [8 App Cas 467] as follows: All the authorities shew that the acts relied upon as part performance must be unequivocally, and in their own nature, referable to somesuch agreement as that alleged … . [20] The Supreme Court of Canada has considered the doctrine of part performance on numerous occasions.

One of the first such caseswas McNeil v Corbett (1907), (SCC), 39 SCR 608, where Duff J., after quoting the above statement of the Earl ofSelborne from Maddison, went on to add this further explanation:

i.e., to an agreement respecting the lands themselves; [and, as further explained in that case] a plaintiff who relies upon acts of partperformance to excuse the non-production of a note or memorandum under the Statute of Frauds, should first prove the acts relied upon;it is only after such acts unequivocally referable … in their own nature to some dealing with the land which is alleged to have been thesubject of the agreement sued upon have been proved that evidence of the oral agreement becomes admissible for the purpose ofexplaining those acts. [21] In other words, for the doctrine of part performance to apply, the acts allegedly constituting part performance must unequivocally,in their own nature, point to some dealing with the land in issue (see also Meisner v Meisner (1905), (SCC), 36 SCR 34;Degelman v Brunet Estate, (SCC), [1954] SCR 725 at 726; Brownscombe v Vercamert Estate, (SCC),[1969] SCR 658; Thompson v Copithorne Estate, (SCC), [1974] SCR 1023; and Buchko v Buchko (1997), (SK KB), 156 Sask R 100 (QB) aff’d, (1998), (SK CA), 172 Sask R 152 (CA)). (Italic emphasis added by Ryan-Froslie J.A.) See also Semchyshen at para 57. [50] In the case at hand, the trial judge found, as a matter of law, that evidence of part performance could fulfill the requirementsof s. 7 of the Statute of Frauds.

She wrote as follows (Trial Decision): [65] Insofar as the trust agreement between the parties in the present dispute is oral and not written, s. 7 of the Statute of Frauds deems itto be unenforceable. That said, while a failure to comply with the Statute of Frauds may deny the plaintiff his remedy at law on the oraltrust, the underlying contract is not avoided and if Mr. Mosiuk can bring himself within the equitable doctrine of part performance, hisremedy is not barred. [51] That brings us to the question whether the doctrine of part performance can be applied to avoid the effect of s. 7 of the Statuteof Frauds.

At the outset, it must be acknowledged that the doctrine of part performance has been traditionally applied in conjunction withs. 4 of the Statute of Frauds. This was the case in Matovich (at paras 18–19) and Semchyshen (at para 55). [52] In Donovan Waters, Mark Gillen, and Lionel Smith, eds, Waters’ Law of Trusts in Canada, 4th ed (Toronto: Carswell, 2012)(7.III) [Waters 4th], the editors compare contract avoidance and the doctrine of part performance and the avoidance of trust obligationsand the doctrines of fraud and part performance.

They opine that “[i]t may be possible to prove a trust in the particular case by actswhich are only explicable in terms of a trust, but it is not necessary to prove it in this way” (at 273).

For ease of comprehension, Ireproduce this quote in the larger context of a comparison between the various doctrines (at 272–273 and 275): III – The Statute of Frauds as Instrument of Fraud … B. – Contract Avoidance and the Doctrine of Part Performance To meet the contract problem, courts of equity fashioned the doctrine of part performance as an alternative means of proving a contract,and for well over a century this doctrine has mitigated much of the bad faith which pleaders of the Statute might otherwise have beenable to perpetrate. Provided

an act has been done which can only be explained on the basis of the alleged oral contract, then the court willoverlook that there is inadequate or no written evidence of the contract. (For the doctrine of part performance, see S.M. Waddams, TheLaw of Contracts, 6th ed. (Aurora, Ont.: Canada Law Book, 2010) at paras. 238–244, and J.D. McCamus, The Law of Contracts (IrwinLaw, 2005), pp. 174–78.) C. – Avoidance of Trust Obligations and the Doctrine of Fraud In their efforts to prevent the trustee of an oral trust from avoiding his obligations, the courts have applied the concept of fraud.

Theprinciple upon which the courts work was set out in the leading case of Rochefoucauld v. Boustead (1896), [1897] 1 Ch. 196 (Eng.C.A.). … D. – Comparison of the Doctrine of Fraud and the Doctrine of Part Performance The difficulty arises from the fact that fraud is a less justifiable ground for excluding the Statute than a claim based on part performance.Part performance requires evidence of acts other than the making of the contract, and these further acts must be referrable to the allegedoral contract.

The doctrine of fraud in its application to the Statute of Frauds, however, does not call for evidence of any occurrence otherthan the creation of the alleged oral trust, and it is the evidence of that creation which the Statute precludes. It may be possible to prove atrust in the particular case by acts which are only explicable in terms of a trust, but it is not necessary to prove it in this way. The court isable to conclude that there was a trust merely by preferring the claimant’s testimony to that of the alleged trustee.

It was no doubt Strong J.’s intention to meet this difficulty when, in a dissenting judgment in McMillan v. Barton (1892), 1892 CanLII 2(SCC), 20 S.C.R. 404 (S.C.C.) at 410, et seq, he argued that the English cases, which had rejected the Statute as a defence, could bejustified. In his view Haigh v. Kaye, Booth v. Turle, Davies v. Otty (No. 2) (Haigh, supra, note 123; Booth, supra, note 126; and Davies,supra, note 127), and Lincoln v. Wright (1859), 4 De G. & J. 16, 45 E.R. 6 (Eng. Ch.), could be explained on the basis that in each thegrantor of land had remained in possession,

an act inconsistent with the deed and consistent with a trust. Here, he concluded, was asituation entirely analogous with part performance. The parol trust was established not merely upon the oral testimony of witnesses, butupon a retained possession which, since it was inconsistent with the deed, could only be explained on the basis of the alleged trust[footnote omitted]. (Emphasis added)

[53] To prove a trust, the editors of Waters 4th observe a preference in the case law for the consideration of the doctrine of fraudover the doctrine of part performance but, nonetheless, find room for part performance for that purpose.

Clearly, some support exists forthe use of part performance to prove the existence of a oral contract for a trust in the case law: McNeil v Corbett (1906), (SCC), 39 SCR 608; Beemer v Brownridge, (SK CA), [1934] 1 WWR 545 (Sask CA); Macdonald v Macdonald, 2003NSSC 8, 212 NSR (2d) 1 [Macdonald]; Palkowski v Ivancic, (Ont Sup Ct J) (aff’d 2008 ONCA 419); Samad vSamad (2008), 69 RPR (4th) 212 (Ont Sup Ct J); Bailey v Beale, 2010 ONSC 4342 at para 20, 96 RPR (4th) 307; D.K. v M.K. and J.P.,2010 ONSC 4585; and Nabi v Qadeer, 2016 ONSC 3770 at para 146.

In cases that have applied the doctrine of part performance toprove a trust, the courts have implicitly relied on the principle that s. 7 renders an unwritten trust as being unenforceable and not void,notwithstanding its wording. See Waters 4th where the editors state, “as the Statute is only concerned with evidence, the words ‘void andof none effect’ are to be read as meaning unenforceable” (at 261).

On this basis, the doctrine of part performance is applied to trusts as ifthey were any other interest relating to land. [54] The lack of a more detailed analysis in the case law than what I have cited does not necessarily mean that the trial judge erred.The case law with respect to many of the issues arising under the Statute of Frauds is often not well-developed. As the Law ReformCommission for Saskatchewan demonstrates in the Frauds Report, this is particularly so with respect to the doctrine of part performance,which is entirely the product of judge-made law (Frauds Report at 13 and 14–15): 3.

Exceptions Almost immediately after adoption of the Statute of Frauds, the courts began to invent ways to avoid applying it. The courts were notintent on perverting Parliament’s will. Instead, as Lord Blackburn put it in Maddison v. Alderson [(1883), 8 App Cas 467 (HL) at 467],the courts acted “to prevent a recurrence of the mischief which the statute was passed to suppress”. It was evident that strict applicationof the Statute would create as much injustice as it cured. Agreements entered in good faith might be avoided, and unscrupulousindividuals might successfully hide behind the Statute.

The doctrinal basis for the exceptions is a matter of debate, but the goal of the courts is reasonably clear. The Statute of Frauds shouldnot be allowed to become an instrument of fraud. … Equity’s principal assault on the Statute, the part performance exception, is a much more unruly creation than the doctrine ofunenforceability. The notion is simple enough, even if nothing in the statute appears to authorize it. The courts of equity were notprepared to allow a party who has benefited from performance of the terms of an agreement to use the Statute to repudiate it.

But as onecommentator has observed: During the last three hundred years there has been a mass of authority on this topic.

Unfortunately, many of the cases are irreconcilablewith each other and it is by no means easy to discover the true answer to the question which we are faced, namely, what are the essentialelements of part performance (Guest, “Part Performance: Back to Square One”, (1974) 90 LQR 433, cited in [British Columbia, LawReform Commission of British Columbia, Working Paper No. 20: The Statute of Frauds, 1976.], p. 20). (Emphasis added) [55] In this case, the trial judge found part performance from these factors: (a) “Mr. Nagel paid Mr. Mosiuk a down payment of $10,000 which had been conveniently lent to Mr. Nagel by Mr.

Mosiuk’swife. The balance owing ($20,000) was deliberately structured to be paid over time on the anniversary date of the agreement by way ofannual interest-free installments of $4,000” (Trial Decision at para 68); (b) “[t]heir arrangement was all the more favorable for Mr. Nagel since Mr. Mosiuk leased back the building at $500 per monthplus utilities. Not surprisingly, the total annual lease payment ($500 x 12 months) received by Mr. Nagel was precisely the same amounthe owed Mr.

Mosiuk on each anniversary date” (at para 69); (c) “[t]here is also evidence about how the related costs of property ownership (utilities, taxes, insurance premiums, legal fees,and income tax derived from rental property) were fully funded by Mr. Mosiuk” (at para 70); (d) “[a]dditionally, the terms of both the sale agreement and lease required Mr. Mosiuk to restore the building in accordancewith the engineer’s report at Mr.

Mosiuk’s expense” (emphasis in original); and (e) “the parties appear to be in agreement that until several months before the fire, they had adhered to their writtenarrangement” (at para 71). [56] This particular issue of part performance to prove a trust under s. 7 of the Statute of Frauds was not well-developed eitherbefore the trial judge or in this Court, but, with that caveat, I am not prepared to conclude that the trial judge erred by relying on partperformance to overcome the writing requirement established by s. 7 for a trust with respect to the Land. b.

In any event, was it open to the trial judge to find that the fraud exception can overcome thelack of a writing under the Statute of Frauds? [57] As an alternative to relying on part performance to prove the existence of an express trust, the respondents relied, at trial, uponthe fraud exception. The Frauds Report notes the following (at 16–17):

(iii) Prevention of Fraud The part performance exception can be regarded as an example of equity’s concern that the Statute of Frauds does not become an instrument of fraud. Although the part performance exception has been applied rather narrowly throughout most of its history, an analogous effort to prevent fraud by trustees has gone much further . In the leading case of Rochefoucauld v.

Boustead , Lindley, L.J. enunciated a doctrine that admits no compromise [at 206]: [I]t is a fraud on the part of a person to whom land is conveyed as a trustee, and who knows it was so conveyed, to deny the trust and claim the land for himself. Consequently, notwithstanding the statute, it is competent for a person claiming land conveyed to another to prove by parol evidence that it was so conveyed upon trust for the claimant … . In the result, sections 8 and 9 of the Statute are virtually dead letters. Oral trusts are routinely enforced by the courts .

As Donovan Waters has observed, “so fundamental is it that a fiduciary may not avoid his obligation that several courts have given effect to such [an oral] trust without mentioning the Statute ” (Waters, The Law of Trusts in Canada , (2nd ed.), 1984, p. 205). (Emphasis added) [ 58 ] The Law Reform Commission of Saskatchewan recognized that resort to the fraud exception proposed by Lord Lindley in Rochefoucauld amounts to a judicial repeal of this aspect of the Statute of Frauds . That comment has been made by other judges in Canada, notably by the Nova Scotia Supreme Court in MacDonald : [11] … As Mr.

MacLeod pointed out, Waters says “in this whole area … the courts are stumbling through a thicket”: D.W.M. Waters, Law of Trusts in Canada , 2nd ed. (Carswell, 1984), p. 212. Part of the difficulty is that the Rochefoucauld v. Boustead approach amounts to a judicial repeal of the statute . An alternative approach would award a constructive trust because of the trustee’s unconscionable retention and because of the fraud that would result if the trustee were allowed to retain, retention by a trustee always being fraud. The remedy of a constructive trust is outside the statute.

So is the resulting trust, and, in some cases, where trustees have been shown to retain land despite an oral trust the conveyance has been voluntary and resort is had to resulting trust. The difficulty is that the terms of the resulting trust could hardly ever be taken from the express parole trust . All of this is discussed at pages 208 to 215 of Waters [2nd ed]. (Emphasis added) [ 59 ] I also note that Harry D. Anger, John D. Honsberger, and Anne W.

La Forest, eds, Law of Real Property , 3rd ed (Toronto: Thomson Reuters Canada, 2018) at 11–26, make the similar point that if an express trust is imposed in the absence of writing, based on the fraud exception, the exception directly contradicts the wording of the Statute of Frauds .

Parol evidence cannot be used to demonstrate an oral agreement pursuant to s. 4 and s. 7; but, the fraud exception, if used to impose an express trust, does exactly that. [ 60 ] Nonetheless, Rochefoucauld remains the most often cited authority to protect the claim of a beneficiary seeking to enforce a trust in relation to land in circumstances where, for whatever reason, a claim for part performance is not available. [ 61 ] The issue thus becomes, at this point, whether a new trial should be ordered for the purposes of canvassing whether the fraud exception to the creation of an express trust should have been found.

I will return to this issue later in these reasons when I consider the clean hands doctrine. c. In any event, was it open to the trial judge to find the respondents could claim the benefit of a voluntary transfer resulting trust? [ 62 ] As an alternative to claiming an express trust at trial, the respondents asserted the existence of a voluntary transfer resulting trust.

Section 8 of the Statute of Frauds does not require that a resulting trust be documented in writing, as it arises by operation of law: 8 Provided always, that where any conveyance shall be made of any lands or tenements by which a trust or confidence shall or may arise or result by the implication or construction of law, or be transferred or extinguished by

an act or operation of law, then and in every such case such trust or confidence shall be of like force and effect as the same would have been if this statute had not been made; anything herein before contained to the contrary notwithstanding. See Semchyshen at para 46 and Dunnison Estate v Dunnison , 2017 SKCA 40 at para 110 , [2017] 8 WWR 18. [ 63 ] The trial judge appears to have made all the findings necessary to support a voluntary transfer resulting trust. She found that (

a) Midtown Interiors transferred the Land to Nagel’s Debt Review and received nothing for it, and (

b) Midtown Interiors lacked donative intent. In such circumstances, it is not necessary to engage the Statute of Frauds . [ 64 ] As with the fraud exception to the creation of an express trust, the issue thus becomes, at this point, whether a new trial should be ordered for the purposes of canvassing whether a resulting trust should have been found or whether this Court can make that determination. I will return to this issue later in these reasons when I consider the clean hands doctrine. d.

Applying the clean hands doctrine, did the trial judge err by allowing the respondents to claim equitable relief? [ 65 ] As I have indicated, the appellants’ first argument was that the trial judge erred in finding that they were parties to the respondents’ scheme to hinder the Town. Rather, they say it was the respondents’ idea and, as such, the respondents should not have been granted what amounts to an equitable remedy because they came to court with unclean hands .

In the alternative, they say that if the trial judge’s findings of fact are upheld, a court of equity cannot weigh the wrongdoing of one over the other, but rather no plaintiff can ever recover if they seek an equitable remedy with unclean hands. Since I have sustained the trial judge’s findings of fact regarding the

intention of the parties when they executed the Transaction Documents, it is the appellants’ alternative argument that I am considering atthis point. The appellants’ argument, at this point, requires the Court to consider to all three equitable arguments made by therespondents in rebuttal: (

a) whether part performance proves the express trust; (

b) whether fraud on the part of the appellants takes this case out of the Statute of Frauds; and (

c) whether it was open to the trial judge to find a voluntary transfer resulting trust and, by virtue of s. 8 of the Statute of Frauds,eliminate any argument based on that statute. [66] The trial judge did not address the question of whether the clean hands doctrine prevented the respondents from seeking aremedy from a court. The appellants’ pretrial brief could be taken as raising the question of the clean hands doctrine as it relates to aclaim for a voluntary transfer resulting trust only – an issue which the trial judge need not have considered, given her findings in relationto an express trust.

In this Court, however, the appellants have explained their argument fully and, in addition to the case law that theyrelied upon in the Court of Queen’s Bench, they have referred the Court to Scheuerman v Scheuerman (1916), (SCC), 52SCR 625 [Scheuerman], pointing out that it has been referred to extensively in the jurisprudence since being released. It is clear from thiscase law that any claim to equitable relief invokes the clean hands doctrine. [67] The clean hands doctrine of equity can be reduced to “he who comes into equity must come with clean hands” (Elford vElford (1922), (SCC), 64 SCR 125).

The doctrine is described in similar terms across all of the academic texts. InCanadian Encyclopedic Digest, 4th ed (online), Equity “Maxims of Equity: Those Who Come into Equity Must Come with CleanHands” (III.2) (WL) [CED], the authors write the following: §95 The doctrine will not be applied to a case where specific performance is sought and the defence is not that the contract was unlawful,but that it was never made.

Where a person absolutely conveys or has conveyed property to another, but really in trust in order to effectan illegal purpose such as to delay or defeat creditors, he or she cannot, upon showing the oral trust and the illegal object, obtain the aidof the court in getting back the property by way of the resulting trust. (Footnotes omitted, underline emphasis added) [68] Halsbury’s Laws of Canada (online), Equitable Remedies (Coombs), “Those Who Come into Equity Must Come with CleanHands” (II.4) (2018 reissue) at HER-6 (QL) [Halsbury’s], describes the clean hands doctrine as follows: The doctrine permits a court to exercise its discretion to dismiss a claim in equity where the transaction or the claimant’s conductinvolves bad faith, but only where the misconduct has an immediate and necessary relationship to the claim of enrichment or subjectmatter of the claim.

The maxim is related to the doctrine of ex turpi causa non oritur actio, which means that a person cannot found aclaim or cause of action based on his or her own illegal or immoral acts. The maxim operates against a plaintiff to deny equitable reliefthat would otherwise be available. (Footnotes omitted, underline emphasis added) [69] The doctrine of clean hands, however, is not absolute. As Halsbury’s indicates, whether or not the doctrine will be applied is adiscretionary matter.

Further, in Edmund Snell, Stuart Bride, and John McGhee, eds, Snell’s Equity, 32d ed (London: Thomson Reuters,2010), the editors indicate that where an illegal transaction lies at the root of an arrangement, the plaintiff involved with that arrangementcan still avoid the application of the doctrine if he or she does not need to rely on the illegality to establish their claim: “Moreover, aperson can succeed in recovering an interest in property obtained as a result of an illegal transaction so long as it is not necessary to relyon the illegality in order to show title to the property or if the illegal purpose has not been carried into effect” (at 113). [70] Nonetheless, the proposition that a court need not hold the misconduct of a plaintiff against a defendant has implications forthis appeal.

According to the trial judge’s findings, both Mr. Nagel and Mr. Mosiuk were active participants in the scheme. The trialjudge makes this point in her reasons: [2] … Together, Eddy Larry Mosiuk [Mr. Mosiuk] and Douglas Martin Nagel [Mr. Nagel] conjured up a scheme to defeat the legitimatemunicipal interests of the … [Town]. Their scheme appeared to have its desired effect until Mr. Nagel gained an advantage overMr. Mosiuk, which he refused to share or relinquish. It is their falling out which brings them before this Court. (Emphasis added) [71] That brings us to a closer examination of the case law.

In Scheuerman, a husband had transferred property to his wife whothen sold it. Later, the husband sued to recover the property. The Court determined that the husband had transferred the property to hiswife for the purpose of avoiding his creditors. As it turned out, he need not have transferred the property as it would have been exemptfrom his creditors in any event.

Nonetheless, a majority of the Supreme Court confirmed that the husband’s claim could not succeedbecause it was founded upon an intention to defeat creditors. [72] One of the difficulties with Scheuerman, however, is that all five of the judges sitting on the panel provided reasons, with

Duff J. casting doubts on the decision (but concurring in the result) and Anglin J. writing a strong dissent. Since then, the Supreme Courtappears to have stepped back from its majority decision. Sigurdson J., in Tribe v Soiseth, 2006 BCSC 652, 26 RFL (6th) 28 [Soiseth],provides the most comprehensive judicial examination of this area of the law, and his analysis has informed my approach to this part ofmy reasons. [73] In Soiseth, the plaintiff sought to avoid sharing the matrimonial home with her former husband on the basis that it belonged toher parents. The parents bought the property as an investment.

They bought it in their daughter’s name to avoid the payment of capitalgains on what would be a secondary residence for them if it had been registered in their name. Sigurdson J. found for the plaintiff on thebasis that the colourable purpose need not have been disclosed because he found clear evidence that the property had been transferred forno consideration and a clear lack of donative intent, in other words, no gift had been intended. [74] As Sigurdson J. demonstrates, issues have arisen in the cases that succeed Scheuerman: (

a) whether evidence of an illegalscheme is admissible if the scheme has not been carried out or could not be carried to fruition, or (b) “whether the doctrine of locuspoenitentiae – literally, “place for repentance” – operates in these circumstances” (at para 51).

A further issue concerns what is meant byan illegal scheme, or, in other words, is the doctrine of clean hands confined to fraudulent actions or actions to defeat or delay creditorsonly or does it extend to dishonest and sharp business practices? [75] In answering these questions, Sigurdson J. reviewed the Supreme Court’s jurisprudence subsequent to Scheuerman: [54] Subsequent Supreme Court decisions have expressed varying degrees of doubt about the majority’s reasons in Scheuerman. In Krysv.

Krys (1928), (SCC), [1929] S.C.R. 153, a farmer feared that his wife’s illness would ruin him with medical bills, andtherefore conveyed some land to his son. The Court declined to infer an illegal scheme where one had not been pleaded and, in doing so,called into question the authority of Scheuerman. Newcombe J. wrote at 164, “The facts in the Scheuerman case were special; thatdecision depends upon its own facts, and there does not seem to be that unanimity in the reasons handed down by the judges constitutingthe majority that is necessary for a ruling case”. [55] Scheuerman was also questioned in Goodfriend v.

Goodfriend [ (SCC), [1972] SCR 640]. The case once againinvolved a man who transferred property to his wife, this time at her suggestion, to avoid a possible judgment creditor who nevermaterialized. The majority found that it did not need to consider Scheuerman, because the transfer was at the wife’s insistence and, as aresult, she could not rely on the presumption of advancement.

Spence J. concurred in the result, but his reasons echoed Krys insuggesting that Scheuerman was confined to its facts. [56] He adopted the position, similar to that of Anglin J. in Scheuerman, that in order to defeat the claim of the transferor in an illegalscheme, there must be proof that there were creditors prejudiced as a result of the transfer. … [59] Spence J. noted [in Goodfriend v Goodfriend] at 652 that: I am of the opinion that the judgment of this Court in Krys v. Krys confines the decision in Scheuerman v. Scheuerman to the exact factsin that case and that the judgment in Krys v.

Krys states the law applicable to the present case. Here as there, there was no proof that hehad creditors or that any creditor was defeated, hindered or delayed by the transfer … . (Emphasis added) [76] As it will be observed from reviewing the above quotation, the decision in Goodfriend v. Goodfriend, (SCC),[1972] SCR 640 [Goodfriend], is significant.

Not only does the Supreme Court question its earlier decision in Scheuerman, the SupremeCourt declined to apply the clean hands doctrine because the defendant in that case was the author of the illegal scheme. [77] As with the previous questions, the question for this Court is whether we can determine the effect of the clean hands doctrineor whether there must be a new trial. e.

Should a new trial be ordered to permit further consideration of the last three questions? [78] In my view, a new trial should not be ordered. [79] Resolution of the application of the clean hands doctrine is clearly the critical and primary issue in this case.

I say this becauseonly if it were determined that part performance does not apply to proving the existence of a trust under s. 7 of the Statute of Frauds doesone need to consider the application of the fraud exception or determine whether a voluntary transfer resulting trust exists in this case.But, it is clear that the trial judge’s finding, that the respondents could rely on part performance to avoid the application of the Statute ofFrauds, invokes the equitable jurisdiction of the court, which brings in the clean hands doctrine, in any event, making it the prime issuein this appeal. [80] The evidence is that the Town had issued an Order to Remedy directed to the respondents.

The Town did not register theOrder to Remedy on the certificate of title. The issue is of significance because s. 364 of The Municipalities Act, SS 2005, c M-36.1,provides as follows: Order to remedy contraventions 364(1) If a designated officer finds that a person is contravening this Act or a bylaw, the designated officer may, by written order, require

the owner or occupant of the land, building or structure to which the contravention relates to remedy the contravention.

(2) The municipality shall serve a written order on the person to whom the order is directed. …

(5) A municipality may cause an interest based on an order made pursuant to this

section to be registered in the Land Titles Registryagainst the title to the land that is the subject of the order.

(6) If an interest is registered pursuant to subsection (5), the interest runs with the land and is binding on the owner and any subsequentowner. (Emphasis added) [81] Thus, it was the Town’s failure to register the Order to Remedy on the certificate of title to the Land that made it possible forit to be transferred and avoid compliance with the Town’s bylaw.

Leaving aside the question of whether relying on such an omissionconstitutes an illegal scheme, according to the trial judge’s clear findings of fact, the appellants instigated the scheme in this case andsuccessfully implemented it. [82] The trial judge reviewed Mr. Mosiuk’s evidence (Trial Decision): [28] Mr. Mosiuk steadfastly maintained under cross-examination that it was Mr. Nagel who informed him that the Town’s order wouldnot follow title and be visited upon a new owner once title changed hands. Mr.

Mosiuk’s position was succinctly put in para. 13 of hisaffidavit sworn on June 10, 2015: I was advised by Doug that all of this complicated paperwork was necessary to ensure the Town … could be stopped from demolishingthe building as there being no Interest registered on the Title to the Building by the Town … upon the transfer of legal Title to Doug, orhis company, the new legal owner would take free of any unregistered notices on Title. This contention was repeated by Doug in hisletter from Doug to the Town … dated March 2, 2009. [29] Mr. Mosiuk insisted it was Mr.

Nagel who came up with the lease back idea to fund payment of the purchase price. [83] When the trial judge made findings of fact, she accepted the above evidence (and I repeat): [57] Where their evidence differs, I accept the evidence of Mr. Mosiuk. His evidence was straightforward and his explanations wereplausible in the context of the whole of the evidence. I find as fact that Mr. Mosiuk approached Mr. Nagel for advice and a creativesolution to the looming demolition deadline. I accept that Mr.

Nagel conjured up the plan to transfer title to thwart the Town’s pendingactions and that they worked cooperatively to put Mr. Nagel’s plan into place. I accept that the parties intended for Mr. Nagel to hold theland in trust for Mr. Mosiuk in order to buy some time for Mr. Nagel to build a working relationship with the Town and for Mr. Mosiukto devise a plan of action with regard to the dilapidated building. I also accept there was a promise to reconvey the land to Mr. Mosiukwhich was never honoured by Mr. Nagel. (Emphasis added) Thus, the trial judge clearly found that Mr. Nagel was the inventor of the scheme.

He was, of course, also the author of the March 2,2009, letter to the Town pointing out that the Order to Remedy had not been registered: “Was it your intention that the Order to Remedywas to apply to the new owner … . There is no order registered, therefore the Order to Remedy, issued to Midtown Interiors c/o LarryMosiuk, does not flow to the new owner” (emphasis removed). [84] As a matter of principle, one does not weigh the wrongdoing of the parties to an illegal scheme to determine whose fault wasgreater.

In CED, the authors confirm this principle: §94.1 Equitable relief will be refused where there is an immediate and necessary relation between the relief sought and the misconduct inquestion. Notably, in such cases, unsuccessful plaintiffs typically attempt to base their entitlement to relief on conduct that the court thenfinds to involve some deceit, fraud, or concealment of information for their personal benefit.

If both parties have “unclean hands”, thecourt should consider only those of the plaintiff and need not balance the misconduct of one against that of the other. (Footnotes omitted, underline emphasis added) (I observe that the underlined portion in §94.1 refers to Taylor v Guindon (2005), at para 48 (Ont Sup Ct J) [Taylor].In Taylor, the Court exercised its discretion not to order a constructive trust because of the plaintiff’s conduct. it is not evident that thetrial judge found either that the defendant had participated in an illegal scheme or that he was found to have engaged in misconduct ofsome form that would attract the opprobrium of the clean hands doctrine). [85] Notwithstanding this caveat in the authorities, the application of the doctrine of clean hands remains discretionary.

Often, inthe cases where the clean hands doctrine is invoked, there are two parties to the scheme – one of whom who plays a lesser role. This isso, for example, in Scheuerman, where the wife benefitted by the application of the doctrine, but she had nonetheless known that herhusband had transferred the land to her with the intention of avoiding his creditors. The clean hands doctrine does not obligate a court torefuse to order an equitable remedy in any given situation.

The doctrine confers a discretion on the Court to act in accordance with itspurpose. [86] The law is clear that a fraudulent scheme or a scheme to defraud or to delay creditors cannot be relied upon by someoneseeking to obtain an equitable remedy. But here, where the person who is claiming the benefit of the clean hands doctrine is not only theinstigator of the scheme but is also the person who brought it into effect, refusing the equitable remedy would grant a greater injustice

than the law seeks to remedy by virtue of the clean hands doctrine. In such circumstances, it is appropriate for this Court to exercise itsdiscretion to refuse to give effect to the clean hands doctrine. [87] In that regard, I find the words of Laskin J., in Goodfriend, to be particularly apt (at 642): Scheuerman v. Scheuerman (1916), (SCC), 52 S.C.R. 625, even on the farthest reach of the principles of illegality, asexhibited in the reasons of Fitzpatrick C.J.C., does not stand in the way of the conclusion I would reach on the preferred view of the factsthat I have set out.

It cannot be said, in applying the standard expressed by the Chief Justice, that the respondent husband in the presentcase had any intent to violate the law as against any judgment creditor. Even if he could be said to be tarnished in giving way to his wife,I am of opinion the spouses were not in pari delicto, and that no social interest would be served in permitting the wife to retain the land:see Kiriri Cotton Co. Ltd. v.

Dewani, [1960] A.C. 192., at p. 204. (Emphasis added) [88] As I stated at the outset, this appeal turns on the trial judge’s key findings of fact regarding the intention of the parties increating the scheme and the credibility of Mr. Nagel.

Echoing the words of Laskin J. in Goodfriend, it can be safely said that no socialinterest would be served in permitting the appellants to retain the Land and the insurance proceeds. [89] If I am wrong in sustaining the trial judge’s use of part performance under s. 7 of the Statute of Frauds, I would not order anew trial in order to consider whether the fraud exception applies or whether the respondents can rely on a voluntary resulting trust.

Inher careful reasons, the trial judge made all the findings of fact necessary to find a voluntary resulting trust and to apply the fraudexception, and determine whether the clean hands doctrine should apply. [90] Thus, I would sustain the trial judge’s result, which is that the Land must be put back into the name of Midtown Interiors. D. Did the trial judge err by awarding the insurance monies to therespondents? [91] The appellants also submit that the insurance proceeds they obtained from the destruction of the building are not connected tothe dispute in this appeal.

Even if a trust were imposed, they submit that the trust does not cover the insurance proceeds. In that regard,they rely on Shinkaruk Enterprises Ltd. v Commonwealth Insurance Company (1986), (SK KB), 49 Sask R 61 (QB):“money in court is impressed with a certain characteristic. It is not just any money, but rather it is insurance money and it must be paidout as such to the person entitled thereto according to law” (at para 13). [92] This argument cannot be sustained in light of fundamental trust law principles.

Having found that the respondents are thebeneficiaries of a trust for the Land, and that the appellants hold the Land as trustees, any insurance proceeds Nagel’s Debt Reviewobtained would be subject to that relationship. Nagel’s Debt Review would have received the proceeds as a trustee and would beobligated, pursuant to the terms of the trust, to hold it for the benefit of the respondents. E. Did the trial judge err by piercing the corporate veil so as to permit a suitagainst Mr. Nagel personally? [93] According to the record before this Court, no argument was made at trial regarding this issue.

As far as I can see, Mr. Nagelwas not prejudiced by being named as a defendant. The trial judge awarded the respondents one set of costs only. Quite clearly, theregistered owner of the Land is Nagel’s Debt Review. It is that body to whom the insurance monies were paid. Thus, it is also the partythat owes Midtown Interiors the payment of the monies in issue, i.e., the monies that are currently held in trust by the Court of Queen’sBench. F.

Did the trial judge err with respect to the calculation of the amountpayable to the respondents? [94] In oral argument, the respondents asked the Court to consider whether the trial judge should have based her calculations onthe actual sum paid into court, which was $37,000, as opposed to $30,000, which represents the value contained in the TransactionDocuments. The issue is whether this Court should entertain this ground of appeal in light of the fact the respondents did not file a cross-appeal. In our view, the lack of a cross-appeal is fatal to this argument.

Nonetheless, it can be said that whatever the $37,000 represents,the trial judge made a specific finding that the loss in question was valued at $30,000, being the purchase price of the Land, which is,according to the parties, of nominal value at this time. VI. Conclusion [95] The appeal is dismissed with one set costs being payable to the respondents. “Jackson J.A.”

Jackson J.A. I concur. “Ottenbreit J.A.” Ottenbreit J.A. I concur. “Herauf J.A.” Herauf J.A.