Appropriate for equity to impose remedial constructive trust despite reality that doing so would deplete bankruptcy assets

CW in her capacity as trustee of estate of late SJ (“S Estate”) submitted proof of claim to CS Inc. in its capacity as trustee in Bankruptcy (“Bankruptcy Trustee”) of estate of JW. CW claimed that S Estate had proprietary interest in net proceeds of two pieces of property: Cottage property and Family home (together, “Real Property”). Real Property had been sold. Net sale proceeds of Real Property, totaling approximately $1.6 million, were being held in trust account of Bankruptcy Trustee. CW appealed from decision of Bankruptcy Trustee. Appeal allowed. Bankruptcy Trustee was not correct in conclusion that S Estate did not have proprietary claim to net proceeds from Real Property. S Estate had proprietary interest in real property, which it can trace into their net proceeds of sale. Court will remain seized should there be any issues with respect to proper amount of Property Claim considering all of circumstances, this was one of rare and exceptional cases wherein it was appropriate for equity to intervene to impose remedial constructive trust despite the reality that to do so would deplete bankruptcy assets and defy formal process of Bankruptcy & Insolvency Act (“BIA”). JW breached fiduciary duties as executor of S Estate. Net sale proceeds of Real Property only form part of JW’s bankrupt estate because of his wrongdoing. Had JW not engaged in such misconduct, his creditors, whether formed before or after transfer, would not have had access to net sale proceeds of Real Property. JW's estate and by extension his creditors therefore would be unjustly enriched by neglect of duties. Tax Liability that JW was obligated to pay prior to transferring the Real Property to himself remained debt of estate.

In the Matter of the Bankruptcy of The Testamentary Estate of Jeffrey James Wilson (2019), 2019 CarswellOnt 2919, 2019 ONSC 1278, V.R. Chiappetta J. (Ont. S.C.J.).