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Proprietary Estoppel: a Modern Approach to the Cottage Conundrum

Recreational properties—and specifically, the family disputes that arise from the use and enjoyment of cottages—generate a considerable amount of litigation. Family members often enter into agreements or arrangements in respect of those properties without documenting their intentions, based on what they assume are shared but unspoken intentions, and without turning their minds to the property rights that can arise from these arrangements.

We see an example of this cottage conundrum in the recent decision of the Ontario Court of Appeal in Clarke v. Johnson.1 The reasons provide an excellent review of the modern approach to the doctrine of proprietary estoppel; an equitable doctrine that arises whenever property rights have been affected or created in the absence of consideration or a written agreement.

The following opening comments of Justice Pepall suggest that, as Canadians, we should all be aware that such property rights can arise in the absence of a contract:

A cottage, a camp, a cabin, a country house, a ranch: these are the different names given to second homes across Canada. No matter the description, Canadians’ affinity for their recreational properties is deep, abiding and renowned. This appeal involves such a recreational property.2

Indeed, this affinity of Canadians for their recreational properties was manifest in the emotional attachment of the claimant, Mr. Clarke, to the cottage in question. That emotional attachment was an important factor in the remedy that he obtained at trial: a proprietary interest in a piece of land that he did not own.3

The last long weekend of the summer is quickly approaching. Those who will spend the weekend at a cottage for which they have a deep and abiding affinity—and especially those who do not actually own said cottage—may find this review of proprietary estoppel timely and thought-provoking.

Facts

Briefly, Mr. Clarke built a camp site, and eventually a cottage, on his in-laws’ island with their knowledge, approval and financial assistance. Mr. Clarke and his wife subsequently divorced but he continued using the cottage for 20 years after the divorce. During that time he made significant improvements to the cottage and paid all bills arising from his use of it.

When a dispute arose amongst the family members, the ex-wife’s family changed the locks on the cottage and issued a trespass notice against Mr. Clarke. Mr. Clarke sought and obtained an interlocutory injunction to restore his access to the cottage, and the dispute proceeded to trial.

Trial Decision

At trial, Mr. Clarke argued that he either owned the cottage or had an equitable right to continue occupying the cottage as a result of unjust enrichment and proprietary estoppel.

The trial judge found that the ex-wife’s family owned the cottage, but they had been unjustly enriched by Mr. Clarke’s investment in the cottage. They had induced, encouraged or allowed Mr. Clarke to believe that he would enjoy the right to the property until he died. Mr. Clarke relied on this belief when he made significant contributions to the maintenance and improvements of the property.

With respect to the claim for proprietary estoppel, the trial judge applied Schwark v. Cutting2010 ONCA 61 (CanLII)and found that the three elements of proprietary estoppel had been established:

(1)   the ex-wife’s family owned the property and had induced, encouraged or allowed Mr. Clarke to believe that he would enjoy some right or benefit over the property (“inducement”);

(2)   in reliance upon his belief, Mr. Clarke acted to his detriment to the knowledge of the owner (“detrimental reliance”); and

(3)   the owner then sought to take unconscionable advantage of Mr. Clarke by denying him the right or benefit which he expected to receive (“unconscionability”).

The court held that it would be unconscionable to allow the ex-wife’s family vacant possession, which would give them the right to use it themselves or rent it out. The trial judge held that the appropriate remedy in this instance was a constructive trust in the cottage in favour of Mr. Clarke in the form of a license to occupy, subject to terms: the license is exclusive, it could not be transferred or assigned, the license would terminate on Mr. Clarke’s death, the property had to be maintained to a particular standard and it could not be materially altered.

The modern approach to Proprietary Estoppel and the nature of unconscionability

The ex-wife’s mother – the owner of the land, Mrs. Williams – appealed. With respect to proprietary estoppel, she argued that the trial judge erred by misconstruing or misapplying the element of unconsionability that forms part of the third element of proprietary estoppel as set out in Schwark v. Cutting. Mrs. Williams submitted that she had not intentionally sought to take advantage of Mr. Clarke, and her actions fell far short of anything akin to fraud.

In addressing this component of the appeal, the court reviewed the historical waxing and waning of the test for proprietary estoppel since its earliest form in 1866. The doctrine was originally in the form of a three-part test requiring the presence of inducement, detrimental reliance, and unconscionability. That three-part test later developed into a five-part test described as the “five probanda,” but subsequent decisions retreated from the necessity of meeting the five probanda in favour of the original three-part test.

Throughout the same time period, the nature of the unconscionability element also expanded and contracted; at times it was considered to be akin to fraud, but courts subsequently found that the word “fraud” in proprietary estoppel decisions did not attract the usual legal meaning.

In determining whether the three-part or five-part test is applicable in Ontario, the court considered two recent Ontario Court of Appeal decisions4 and compared them to the approach taken by the Court of Appeal in British Columbia and the courts in the United Kingdom. In the Ontario decisions, the court applied the three-part test but used the five probanda as a test for the unconscionability element. By contrast, the BC court preferred the application of only the three-part test and expressly adopted the modern approach espoused in the United Kingdom inTaylor Fashions Ltd. v. Liverpool Victoria Trustees Co. Ltd., [1981] 1 All E.R. 897 (Ch. D.), which represented a “watershed in the development of proprietary estoppel” in the U.K..5

Justice Pepall confirmed that the modern approach used in BC is preferable, and adopted the unconscionability element as defined in in Taylor Fashions:

In Taylor Fashions, the court held that, in all the circumstances, it would be unconscionable for a representor to go back on the assumption which he had allowed the representee plaintiff to make.  Justice Oliver stated, at p. 915-916:

Furthermore, the more recent cases indicate, in my judgment, that the application of the Ramsden v. Dysonprinciple (whether you call it proprietary estoppel, estoppel by acquiescence or estoppel by encouragement is really immaterial) requires a very much broader approach which is directed to ascertaining whether, in particular individual circumstances, it would be unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he has allowed or encouraged another to assume to his detriment rather than to inquiring whether the circumstances can be fitted within the confines of some preconceived formula serving as a universal yardstick for every form of unconscionable behaviour.6 [emphasis added]

Accordingly, the court found that the trial judge did not err in finding proprietary estoppel was established on the basis of the three-part test in Schwark. In doing so, the court provided the following summary of principles that apply to the modern approach proprietary estoppel:

–      proprietary estoppel may form the basis of a cause of action;

–      it is not essential that the five probanda be satisfied;

–      rather, three elements must be established:

(i) the owner of the land induces, encourages or allows the claimant to believe that he has or will enjoy some right or benefit over the property;

(ii)  in reliance upon his belief, the claimant acts to his detriment to the knowledge of the owner; and

(iii) the owner then seeks to take unconscionable advantage of the claimant by denying him the right or benefit which he expected to receive;

–      detriment includes expenditures but countervailing benefits may also be considered;

–      reliance may be express or inferred;

–      if an equity arises, the court has a broad discretion to fashion an appropriate remedy.7

The court concluded its reasons in favour of the respondent on the issue of proprietary estoppel with the following quote from Taylor Fashions:

I am not at all convinced that it is desirable or possible to lay down hard and fast rules which seek to dictate, in every combination of circumstances, the considerations which will persuade the court that a departure by the acquiescing party from the previously supposed state of law or fact is so unconscionable that a court of equity will interfere.  Nor, in my judgment, do the authorities support so inflexible an approach.8

Proprietary Remedy for Unjust Enrichment

The appellant further argued that the trial judge erred in granting a proprietary remedy for the successful unjust enrichment claim. The court observed that Kerr v. Baranow, 2011 SCC 10 (CanLII) provides ample authority for the proposition that monetary remedies may be suitable in most cases, but proprietary remedies may be appropriate where there is a link between the deprivation and the property in question.9 In the case at bar, the court found that the presence of proprietary estoppel supported the appropriateness of the trial judge’s proprietary remedy in the form of a constructive trust.

Commentary

Although the five probanda still makes an appearance in recent Ontario judgments on proprietary estoppel, the modern approach – the three-part test set out in Schwark – is the appropriate test.10 The five probanda may be referred to as a guide to analysis, but need not be applied.

Unconsiconability is a requirement of the doctrine, but it appears as though it is not necessary to establish that the property owner intended to take advantage of the injured party or that the property owner’s actions are akin to fraud. Rather, the applicant or claimant need only establish that it would be unconscionable to deny his or her reasonable expectations as regards the property.11

Unspoken arrangements and agreements among family members in respect of recreational properties can give rise to equitable property rights, regardless of whether or not the property owner intended to grant such rights to another. Owners of recreational properties, and those who invest in recreational properties that they do not own, may wish to speak to a lawyer to find out if their “arrangement” could attract unintended equitable remedies.


1. Clarke v. Johnson, 2014 ONCA 237 [“Clarke”]

2. Clarke at para. 1

3. Clarke at paras 1, 27, 29

4. Schwark v. Cutting2010 ONCA 61 (CanLII), 2010 ONCA 61 and, more recently, in Tiny (Township) v. Battaglia2013 ONCA 274 (CanLII), 2013 ONCA 274

5. Clarke at paras 50 and 51

6. Clarke at para 45

7. Clarke at para 52

8. Clarke at para 53

9. Clarke at para 78

10. Clarke at para 61

11. Clarke at paras 59 and 60

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