Sabey Rule Blog

MacKinnon v. Donauer

By January 29, 2018 No Comments

There is no shortage of court cases in British Columbia of informal family arrangements going awry. A parent may assist a child and the child’s spouse in purchasing a home with the expectation of sharing the home. The idea may make good sense. Unfortunately, neither side may consider what will happen if the arrangement doesn’t work out. In the case I am about to write about, MacKinnonv. Donauer, 2017 BCCA 437, for example, Madam Justice Newbury, noted at paragraph 3,

As is usually the case in family arrangements of this kind, none of the parties sought legal advice, and no one seems to have considered various contingencies that could arise in the parties’ lives or in their relationship.

Fortunately, the courts do have a fair amount of flexibility in fashioning a remedy consistent with what the parties may have reasonably expected had they turned their minds to the potential problems that might arise. Unfortunately, by the time the matter gets to court, the parties may spend a hundred times as much in legal expense than what they would have spent if each had received independent advice and entered into a formal agreement.

Joy MacKinnon paid $150,000 to her daughter, Tina Maria Donauer, and her daughter’s husband, Michael Donauer, toward the purchase of a home. In return the Ms. MacKinnon and her husband (who later died in 2013), moved in to the new home to live in the basement suite. The understanding among the parties was that Ms. MacKinnon would be entitled to live in the suite indefinitely without paying rent. She was 58 years old when she contributed the funds toward the purchase and moved into the suite,

She lived in the suite for about 9 years. She contributed $28,500 towards some of the property expenses. Following a disagreement with her daughter and son-in-law, Ms. MacKinnon moved out of the suite in January, 2015.

Ms. MacKinnon sued her daughter and son-in-law, claiming a 29 percent interest in the home on that basis that she contributed 29 percent of the purchase price. She claimed the interest on a resulting trust, or, alternatively, unjust enrichment. The trial judge dismissed her claim for an interest in the home, but awarded her $28,500 for the funds she contributed to the expenses. The trial judge found that she did not prove her claim in either resulting trust or unjust enrichment.

Ms. MacKinnon appealed to the British Columbia Court of Appeal, which overturned the trial judge’s decision in respect of the initial contribution of $150,000. Madam Justice Newbury held that on the facts, Mr. and Mrs. Donauer would be unjustly enriched if they were allowed to retain the full benefit of Ms. MacKinnon’s initial $150,000 contribution. They were enriched by her contribution, she suffered a corresponding deprivation, and there was no juristic reason for the enrichment. Madam Justice Newbury held that the family arrangement did not constitute a juristic reason for the enrichment as the trial judge had found, However, Ms. MacKinnon also received the benefit of living in the suite for nine years, without contributing to the full rental value.

Madam Justice Newbury wrote:

[45]         It seems to me that the appropriate analysis emerges if one imagines a situation in which after a short period of living with Ms. MacKinnon under the family arrangement, the Donauers had expelled her from their home. In that event, I suspect a court would have little difficulty in finding that the defendants had been unjustly enriched – i.e., that it would be unjust for them to retain the full $150,000. Ms. MacKinnon would be found to have a reasonable expectation of some remedy – despite the existence of a family arrangement. It was, of course, Ms. MacKinnon who chose to leave – and not, if I may say so, for any reason that would withstand objective scrutiny. Was it reasonable for her to expect she could unilaterally bring the arrangement to an end and claim a proprietary interest in McClure, with the resulting disruption of a forced sale? It is difficult to say she was “prejudiced” by her own decision to leave. On the other hand, would it be reasonable for the defendants to expect to retain the entire benefit of the funds and their appreciation in the real estate market?

[46]         Considering objectively what the parties could have reasonably expected in light of all the circumstances when they entered into the family arrangement, I believe the trial judge erred in ruling that it constituted a juristic reason that justified the Donauers’ retaining the entire benefit of Ms. MacKinnon’s funds. At the same time, the fact the Donauers accommodated her in their home for over nine years and thus provided a benefit to her must be taken into account in fashioning the appropriate remedy for the enrichment. (As the Court stated in Kerr [v. Baranow, 2011 SCC 10], ‘mutual benefit conferral’ is generally to be taken into account at this “remedy stage” of the analysis: see para. 109.)

Madam Justice Newbury considered that a financial award would be appropriate in the circumstances. In arriving at a formula for calculating the award, she took into account the nine years Ms. MacKinnon lived in the suite by directing that the value of a 29 percent interest as at the date of trial, be reduced by a fraction representing the nine years she was in the suite over her life expectancy when the home was purchased. Madam Justice Newbury wrote:

[48]         In normal circumstances, I would calculate a money judgment with reference to Ms. MacKinnon’s life expectancy when she was 58 years old. I would multiply 29% of the fair market value of the house at the date of trial by a fraction the denominator of which would be the number of years the Donauers could have expected Ms. MacKinnon to be in the house from 2005 on, and the numerator of which would be that number minus nine. I would then adjust for contingencies arising on the evidence that was before the Court at trial, including the contingency she would have left the suite during her lifetime – for health reasons, for example.

[49]         Unfortunately, there is no evidence before us of the life expectancy of women of the plaintiff’s age in 2005, nor of the market value of McClure as at the date of trial. I would therefore allow the appeal and direct counsel to attempt to determine that market value as at the trial date and Ms. MacKinnon’s life expectancy in 2005, and then to calculate the amount of a judgment in accordance with the foregoing – or to settle upon some other amount. If they are unable to determine or agree upon a figure within 60 days of the date of this court’s order, either party shall be at liberty to return to the Supreme Court of British Columbia, which shall determine an amount in accordance with these reasons.

I have tried working through the formula using made-up values. Say the house was worth $1 million at trial. The value of a 29 percent interest would be $290,000. If her life expectancy in 2005 were 27 years, then she would receive two-thirds of $290,000, which is $193,333. Again, I made these values up, and I don’t know what Ms. MacKinnon will receive in addition to the $28,500, which the Court of Appeal did not disturb.