Reasons for Decision

COURT FILE NO.: CV-24-00721450-00CL
DATE: 2025-01-20
SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: Steven Bulut and 1091369 Ontario Inc., Applicants
-and-
Marko N. Bulut, Respondent

BEFORE: Jane Dietrich
COUNSEL: Peter R. Jervis and Sarah Fiddes, for the Applicants
Rahul Shastri and David Winer, for the Respondent
HEARD: January 7, 2025

Introduction

[1] The Applicants, Steven Bulut (“Steven”) and 1091369 Ontario Inc. (“109”), seek leave to appeal the arbitral award of the Honourable Frank Newbould (the “Arbitrator”) dated April 25, 2024 (the “Award”) pursuant to the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”) and, if leave is granted, an order setting aside the Award.

[2] The Respondent, Marko Bulut (“Mark”), is Steven’s brother. He seeks an order dismissing the application for leave to appeal, or if leave is granted, dismissing the appeal. He further seeks an order recognizing the Award pursuant to s. 50 of the Act.

[3] Pursuant to the Award, the Arbitrator found that Mark is entitled to a constructive trust over 50 percent of the real property held by 109. The real property is approximately 100 acres known municipally as 833 Mapleview Drive, Barrie, Ontario (the “Property”).

Background

[4] The Award was the result of an eight-day arbitration heard in February of 2024 (the “Arbitration”). Numerous affidavits were filed which the Arbitrator addressed within the Award. He noted that many of these affidavits were replete with hearsay and could not be relied upon.

[5] The Arbitrator spent some time in his reasons focusing on credibility. In particular, the Arbitrator found that he had considerable difficulty accepting the reliability of much of Steven’s evidence. He described, in some detail, that Steven is unstable with mental health issues. He provided numerous examples of where Steven acted out during the Arbitration, was impeached on his cross-examination or was at least of poor memory or careless with the truth. In contrast, the Arbitrator found that Mark was a more straightforward witness, did not display the animus towards Steven that Steven displayed towards Mark and dealt with questions, for the most part, directly.

[6] Many of the submissions made by Steven during the hearing before this Court related to evidence before the Arbitrator. The Arbitration was quite fact intensive and given the findings regarding the affidavits and of credibility made by the Arbitrator, the facts referenced herein are those as found by the Arbitrator in the Award, unless otherwise noted.

[7] 109 was incorporated in 1994 and Steven was the sole shareholder and president. 1112618 Ontario Inc. was incorporated in 1995. Mark has been its sole shareholder and president.

[8] The incorporation of the two companies was driven by their father, Nicholas Bulut (“Nick”). The funding from both companies initially came from Nick as well.

[9] At the time of its acquisition by 109 in 1995, the Property was farmland in the Township of Innisfil. In 2010, the Property was annexed by Barrie. It has since been developed to some extent and is now very valuable. Mark and Steven differ as to the role Mark played in its development.

[10] In cross-examination in the Walker-Fairen Action (defined and described below) on May 16, 2008, Nick provided evidence that everything that he provided to Steven – one half of it belonged to Mark. In response to the question “So sir, if Steven were to sell this property outright and Steven were to get twenty million dollars for selling the property is it your testimony that Steven would be obliged to give Marko ten Million dollars” Nick replied “Yes”.

[11] In 2015, Steven made Mark a director of 109 and authorized him to sign bank accounts. Steven terminated Mark as a director of 109 and as a signing officer sometime in 2022 after August 18, 2022.

[12] 109, its shares, and the Property have been the subject matter of various litigation over the years. Steven relied on judgments in that litigation at the Arbitration to say he was the sole owner of 109 and the Property. However, the claims in that previous litigation were brought by third parties and in none of the actions was there any issue as between Steven and Mark regarding their respective rights in the Property. Specifically:

(a) In 975837 Ontario Limited v 1091369 Ontario Inc., Mr. Grossi claimed an interest in the Property related to an agreement whereby he agreed to purchase the Property from 109 in 1995. There was no issue as to Mark’s ownership of the Property;

(b) In Suzanne Walker-Fairen v Nicholas Bulut, Steven Bulut, Marko Bulut, 1091369 Ontario Inc. and 1112618 Ontario Inc. (the “Walker-Fairen Action”), Ms. Walker-Fairen claimed she had an oral agreement for a joint venture with Nick related to the Property. Steven submits that evidence was led in the Walker-Fairen Action that he was the sole owner of 109. Justice Loukidelis found that all 5 defendants in that matter acted as one, led by Nick. The Arbitrator did note that Nick gave evidence, referred to above, that Nick had transferred the Property to 109 with the ‘string’ that Steven share the proceeds of the Property 50/50 with Mark. There was no issue in that proceeding, however, regarding the interests of Mark vis-à-vis Steven with respect to the Property;

(c) In Steven Bulut and 109Ontario Inc. v Nicholas Bulut and Colin Cockburn the issue was whether Nick had authority to act on behalf of 109. There was no issue during that litigation as to whether Mark had any interest in 109 or the Property; and

(d) In Stojanovic v Nicholas Bulut, a claim was made by a creditor of Nick, alleging that 109 and the assets of 109 were legally owned by Nick. Mark swore two affidavits in that proceeding stating that 109 was owned by Steven and that 109 owned the Property. The Arbitrator considered that evidence and held that it should not be taken as a denial of a claim by Mark in the Arbitration of a 50 percent interest in the Property by way of constructive trust. Entitlement to the Property as between Mark and Steven was not in issue.

[13] In 2018, there was some discussion of selling the Property. Accordingly, meetings were held with a number of investment, insurance and tax advisors. The evidence coming out of those meetings was that the discussions were collaborative with the two brothers and the implication was that if the Property were to be sold, there would be a division of funds to Mark and Steven. The Arbitrator accepted that there was no discussion about how they were to allocate the funds, but that it was obvious they were both expecting to benefit. This is consistent with other findings of the Arbitrator that Steven had, over the years, referred to the Property as ‘our’ property when communicating with Mark and others.

[14] Despite Steven’s assertion that he had provided millions of dollars in his personal funds to 109, the Arbitrator did not accept that there was any concrete evidence of the source of the funds. At best, he found that the evidence was that certain other business ventures – which were joint business efforts of both brothers – were used.

[15] The Arbitrator further found that Steven is unwell with a lengthy history of drug dependency and abuse, which led him to having psychotic episodes and at the time of Arbitration, Steven could not focus, concentrate, or undertake complex tasks. The relationship between Mark and Steven deteriorated over the years, primarily because of Steven’s drug problem.

[16] Steven was in Credit Valley Hospital in Mississauga following an incident in Alabama in June of 2022. In August of 2022, the relationship between the brothers deteriorated further. Mark (and others) wanted Steven to stay in the hospital until a spot in a rehabilitation facility could be found, however, Steven did not agree and left the hospital. There were threats of litigation by Steven and Steven removed Mark as a director and signing officer of 109.

[17] There were claims made by Steven in the Arbitration that Mark had improperly withdrawn funds from 109’s bank account between June 20, 2022, and August 18, 2022. Those withdrawals were addressed in the Award and were not part of leave to appeal application before me.

Issues

[18] The issues to be determined on this application are:

(a) Should leave to appeal the Award be granted?
(b) If leave to appeal is granted, should the Court find that the Arbitrator erred?
(c) If leave to appeal is dismissed, or if leave is granted and the award upheld, should an order recognizing the Award pursuant to s. 50 of the Act be made?

Analysis

Issue 1: Should Leave be Granted

Test for Leave

[19] The parties agree that based on the relevant arbitration agreement provisions, s. 45(1) of the Act applies:

45 (1) If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that,

(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and

(b) determination of the question of law at issue will significantly affect the rights of the parties.

[20] Mark concedes that the matter is one of importance to the parties under s. 45(1)(a) of the Act.

[21] Under s. 45(1)(b) of the Act, leave may only be granted on questions of law. Leave is not to be granted on questions of mixed fact and law or questions of fact.

[22] Extricable questions of law include legal errors involving the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor: see Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, para 53.

[23] However, as stated in Housen v. Nikolaisen, 2002 SCC 33, para 36: “where the legal principle is not readily extricable, then the matter is one of ‘mixed law and fact’ and is subject to a more stringent standard. The general rule...is that, where the issue on appeal involves the trial judge’s interpretation of the evidence as a whole, it should not be overturned absent palpable and overriding error.” As well, a question about whether the facts satisfy the legal test is one of mixed fact and law: see St-Jean v. Mercier, 2002 SCC 15, para 48.

[24] Steven claims that the Arbitrator erred in law in three ways:

(a) by awarding Mark a constructive trust on the basis of good conscience alone;
(b) by finding Mark’s cause of action was not statute barred (based on limitation period arguments); and
(c) by failing to find that Mark’s claim was barred by issue estoppel or abuse of process.

Did the Arbitrator err in law by awarding Mark a constructive trust in the property on the basis of good conscience alone?

[25] The Arbitrator in para 107 of the Award noted that Mark based his claim for constructive trust on two grounds: (i) as a remedy for unjust enrichment; and (ii) as an equitable remedy where good conscience so requires.

[26] Steven’s position is that the Arbitrator made an error of law by basing his finding for a constructive trust on good conscience alone. Steven argues that the current state of the law does not permit a constructive trust based on good conscience alone as this would grant judges immeasurable judicial discretion. Rather, he says that Soulos v. Korkontzilas, properly interpreted, limits the application of a constructive trust to two situations: (i) where there is a wrongful act; and (ii) where there is a finding of unjust enrichment.

[27] There is no allegation of any wrongful act. So that raises the issue of whether a constructive trust was imposed as a remedy for a finding of unjust enrichment. Steven argues that the Arbitrator did not base the constructive trust on a finding of unjust enrichment because:

(a) At para 169 of the Award, the Arbitrator stated:

“If this were a case involving a claim for a beneficial interest in the Property based on unjust enrichment, it would be necessary to make a determination of what share of the Property would be proportionate for the unjust enrichment. The extent of the constructive trust interest should be proportionate to the claimant’s contributions. See Kerr at para 53. But it is no easy task in a situation involving close brother relations for many years. See Kerr para 48. In this case it would amount to little more than a hunch or guess .... If I had to make such a guess or hunch, I would put Mark’s contribution to the Property at less than 50 percent.”
However, in the end result the Arbitrator granted Mark an award of 50 percent. Accordingly, Steven argues the constructive trust granted to Mark could not be based on unjust enrichment as the end result did not accord with the statement regarding Mark’s contribution set out in para 169 of the Award; and

(b) Following a heading entitled “Conclusion on Mark’s claim for a beneficial interest in the Property”, at para 171 of the Award, the Arbitrator stated:

“As a consequence I hold that in equity as a matter of good conscience, Mark is entitled to a constructive trust of a 50 percent interest in the Property.”
Steven’s argument is that only good conscience is referenced in this concluding paragraph and not unjust enrichment and therefore a finding was made based on good conscience alone.

[28] To determine whether the Arbitrator made an error of law in this regard, two questions must be answered. First, does the current state of the law preclude a finding of a constructive trust based on good conscience alone? Second, if a finding of constructive trust based on good conscience alone is precluded, did the Arbitrator in fact base his finding on good conscience alone?

[29] On the first question, the status of the relevant law was recently summarized by Justice Steele in Hrvoic v. Hrvoic, 2021 ONSC 7537, paras 45-52:

[45] There is some disagreement in the case law as to whether a constructive trust may be imposed in situations other than wrongful act/gain and unjust enrichment. The case law is unclear as to whether these two situations exhaust the “broad umbrella of good conscience”. Accordingly, I set out why it is my view that “good conscience” should encompass more than these two limited situations in appropriate circumstances.

[46] The remedial constructive trust is a tool of equity. In Moore v. Sweet, 2018 SCC 52, the Court stated, at para. 32:

“A constructive trust is a vehicle of equity through which one person is required by operation of law – regardless of any intention – to hold certain property for the benefit of another (Waters’ Law of Trusts in Canada (4th ed. 2012), by D.W.M. Waters, M. R. Gillen and L.D. Smith, at p. 478). In Canada, it is understood primarily as a remedy, which may be imposed at a court’s discretion were good conscience so requires. …”

[47] Under Canadian common law, the constructive trust is available as a remedy in at least two situations: where there has been unjust enrichment, or where property has been obtained through a defendant’s wrongful act, such as fraud or breach of fiduciary duty: Soulos v. Korkontzilas, para 39.

[50] In Soulos, at para. 43, McLachlin J. recast the justification for the remedial constructive trust as being that of “good conscience,” concluding that, “in Canada, under the broad umbrella of good conscience, constructive trusts are recognized both for wrongful acts like fraud and breach of duty of loyalty, as well as to remedy unjust enrichment and corresponding deprivation”. She described “[g]ood conscience” as a “common concept unifying the various instances in which a constructive trust may be found” (para 35). Although she acknowledged that “good conscience” has “the disadvantage of being very general,” (para 35) she also provided some guidance, at para. 34:

“The inquiry into good conscience is informed by the situations where constructive trusts have been recognized in the past. It is also informed by the dual reasons for which constructive trusts have traditionally been imposed: to do justice between the parties and to maintain the integrity of institutions dependent on trust-like relationships. Finally, it is informed by the absence of an indication that a constructive trust would have an unfair or unjust effect on the defendant or third parties, matters which equity has always taken into account. Equitable remedies are flexible; their award is based on what is just in all the circumstances of the case.” [Emphasis added]

[51] Where neither of the two recognized grounds has been established, it is less clear whether a constructive trust may be imposed. The Supreme Court has given conflicting signals on this issue. On the one hand, in Professional Institute of the Public Service of Canada v. Canada (Attorney General), 2012 SCC 71, paras 144-145, Rothstein J., for the Court, cited Soulos for the proposition that there are “two grounds on which a court can impose a constructive trust” and that “good conscience might require the imposition of such a trust in two situations” (emphasis added). On the other hand, the Supreme Court in Moore v. Sweet, 2018 SCC 52, para 95 refused to answer the “open question” of whether Soulos “should be interpreted as precluding the availability of a remedial constructive trust beyond cases involving unjust enrichment or wrongful acts like breach of fiduciary duty”.

[52] The remedial constructive trust is an equitable remedy. I see no reason why it should be confined to only unjust enrichment or wrongful acts like breach of fiduciary duty. There are certainly other cases where good conscience may require the imposition of a remedial constructive trust, and this case is one of them.

[30] The Ontario Court of Appeal upheld the result of the decision of Justice Steele referred to above, however, noted at footnote 2: “As we uphold the trial judge’s finding of equal shareholdings, it is unnecessary for us to review the trial judge’s imposition of a constructive trust. We therefore should notbe taken as endorsing the trial judge’s decision on this issue.” See: Hrvoic v. Hrvoic, 2023 ONCA 508.

[31] Given the Supreme Court’s reference to the “open question” of whether the constructive trust remedy is precluded beyond cases of unjust enrichment or wrongful acts, as referred in Moore v. Sweet, 2018 SCC 52, para 95 (and referred to para 51 of Justice Steele’s decision above), I am not persuaded that if the Arbitrator had in fact based his finding of a constructive trust on good conscience alone, that such would amount to an error of law.

[32] However, if I am incorrect and the imposition of a constructive trust based on good conscience alone is an error of law, as described below, I am satisfied that the Arbitrator also made a finding of unjust enrichment sufficient to impose a remedy of a constructive trust in this case.

[33] In paras 158-168 of the Award, the Arbitrator outlined the law of unjust enrichment and applied it to the facts. He found at para 168 of the Award that “Mark has well established the grounds a finding of unjust enrichment”. In this analysis, the Arbitrator made several findings that Steven, in his argument before this Court, in large part ignored. Specifically, the Arbitrator did not accept Steven’s position that Mark was paid for the work that Mark did to help with the development of the Property [see para 159 of the Award]. The Arbitrator found that Steven had done more work on the Property than Mark, however, he did not accept Steven’s assertion that Mark had done very little work on the Property [see para 160 and 163-166 of the Award]. The Arbitrator also found that Steven overstated his role in developing the Property and downplayed what Steven refers to as his health issues [see para 161 and 162 of the Award]. The Arbitrator also found that a personal remedy would be inadequate and that Mark’s contribution was linked or causally connected to the Property [see para 170].

[34] Following the Arbitrator's finding of the elements of unjust enrichment, and a finding that if the Arbitrator had to make a guess or hunch about Mark’s contribution to the Property, that it would be less than 50 percent, the Arbitrator then went on to conclude:

[171] In the end, the most important fact in this case is that the Property was a gift from Nick to 109 with a string attached to it by Nick. That string was that Mark was to benefit from the Property as much as Steven, with Nick seeing Steven as a person with better business skills than Mark. Steven understood that string that was attached and acted consistently with it until 2022 when he was angry with Mark, some of which was unwarranted and some of which may have been warranted. As a consequence I hold that in equity as a matter of good conscience, Mark is entitled to a constructive trust of a 50 percent interest in the Property.

[35] I am not persuaded that this paragraph should be interpreted to find that the constructive trust – as argued by Steven – was grounded on a matter of good conscience alone. Rather, when the Award is read in its entirety, the Arbitrator was also satisfied that the elements of unjust enrichment had been made out.

[36] Steven also argues that if the Arbitrator imposed the constructive trust based on unjust enrichment, he was required to value Mark’s contribution in order to establish the portion of the Property held in trust for Mark. As set out above, the Arbitrator noted at para 169 of the Award that the extent of the constructive trust should be proportionate to the claimant’s contributions. However, he found, based on the evidence he heard over the eight-day Arbitration that, in this case, such a determination would amount to a little more than a hunch or guess. If he had to make such a guess, he would put Mark’s contribution at less than 50 percent, however, he also found that the most important fact in the case was the ‘string’ attached to gift of the Property to Steven by Nick – that string being that Mark and Steven were to benefit from the property equally.

[37] As set out in Kerr v. Baranow, 2011 SCC 10, para 53, the extent of the constructive trust interest should be proportionate to the claimant’s contributions. The Arbitrator could not say with precision in the Award based on his review of the evidence what the level of Mark’s contribution to the Property was, although he clearly recognized that Mark had made a significant contribution to the Property. Given the limitations in the evidentiary record before him, and considering all of the circumstances of the case, he determined the constructive trust should be valued at 50 percent. I am not persuaded that this amounts to an error of law.

Did the Arbitrator err in law by finding Mark’s cause of action was not statute barred (based on limitation period arguments)?

[38] Steven argues that the Arbitrator erred in law by determining that Mark’s action was not statute-barred by the 10-year limitation period under s. 4 of the Real Property Limitations Act, S.O. 2002, c. 24 (“RPLA”).

[39] Steven and Mark accept that the principle of discoverability applies to s. 4 of the RPLA: see Browne v. Meunier, 2023 ONCA 223.

[40] Although Browne was not before the Arbitrator, the Arbitrator found the principle of discoverability did apply. In para 179 of the Award, he stated:

“While section 4 of the Real Property Limitations Act does not refer to discoverability that is referred to the Limitations Act, 2002, it would seem somewhat unreasonable for a claim to accrue under section 4 of the Real Property Limitations Act if it had not been discoverable.”

[41] Steven claims that the Arbitrator did not apply the discoverability principle correctly. However, the Arbitrator addressed and rejected Steven’s arguments about when Mark's claim was discoverable based on the facts. Steven first argued that it was discoverable in 1995 when 109 acquired the Property. The Arbitrator did not agree because he found as a fact that at that time there was nothing to suggest Steven would take the position that Mark had no interest in the Property [see para 180 of the Award].

[42] Steven also argued the claim was discoverable sometime during the previous litigation (referred to above) as statements were made in that litigation regarding the ownership of the Property and such statements did not reference any beneficial ownership interest of Mark. However, the Arbitrator found that nowhere in that litigation was there an issue as between Steven and Mark with respect to ownership of the Property.

[43] Rather, the Arbitrator found that the action accrued in August of 2022 when Steven threatened legal action, took steps to remove Mark’s signing privileges over the bank account of 109, and to remove Mark as an officer and director of 109 [see paras 182 and 183 of the Award].

[44] What Steven really complains about is how the Arbitrator applied the law to the facts. I am not persuaded that there was any extricable error in law by the Arbitrator in respect of whether Mark’s claim was statute barred and therefore leave to appeal is not granted on this basis.

Did the Arbitrator err in law by failing to find that Mark’s claim was barred by issue estoppel and abuse of process?

[45] The parties agree that the legal doctrines of issue estoppel and abuse of process were not raised by Steven during the Arbitration. Rather the argument was simply that the ownership of the Property had already been determined in the prior litigation referred to above.

[46] As the case law was not raised by Steven in the Arbitration, understandably, the Arbitrator does not refer to the factors set out in Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, para 25 – that the preconditions to a finding of issue estoppel are that (i) the same question had been decided; (ii) that the judicial decision which is said to create the estoppel was final; and (iii) that the parties to the judicial decision were the same.

[47] The more flexible doctrine of abuse of process was also not before the Arbitrator. In Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63 the Supreme Court of Canada noted that (i) the abuse of process doctrine was part of the inherent and residual discretion of a judge to prevent an abuse of the court’s process [see para 35]; it is a flexible doctrine unencumbered by the specific requirements of concepts such as issue estoppel but where allowing the litigation to proceed would violate such principles as judicial economy, consistency, finality and the integrity of the administration of justice [see para 37]; and the policy grounds supporting abuse of process by relitigation are the same as the essential policy grounds supporting issue estoppel [see para 38].

[48] The Arbitrator considered the prior litigation in some detail. He found that in none of the prior litigation was there an issue as between Steven and Mark as to the respective rights in the Property [see para 59 of the Award]. Given that finding, there is no basis for the application of issue estoppel or abuse of process and therefore no error of law. I do not grant leave to appeal on this basis.

Conclusion

[49] Accordingly, I decline to grant leave to appeal to Steven under s. 45(1) of the Act.

Issue 2: If leave to appeal is granted, should the Court find that the Arbitrator erred?

[50] Even if I had granted leave to appeal, I am not persuaded the Arbitrator committed any error of law for the reasons set out above.

Issue 3: Should an order recognizing the Award pursuant to s. 50 of the Act be made?

[51] In his factum, Mark requests an order recognizing the Award pursuant to s. 50 of the Act. No actual application for such relief was made by Mark.

[52] Steven contests such relief at this time stating that certain matters are still before the Arbitrator including with respect to a potential sale of the Property.

[53] Given that (i) no application was before me for this relief; and (ii) Steven takes issue with the relief based on matters that are not before me, I decline to grant an order recognizing the Award at this time, without prejudice to Mark’s ability to bring an application for such relief in the future.

Disposition

[54] For the reasons set out above, the application is dismissed.

[55] If the parties are not able to resolve costs of this application, the respondent may email its costs submission of no more than three double-spaced pages to the Commercial List office within 15 days of the date of this decision. The applicants may deliver their responding submissions of no more than three double-spaced pages within 15 days following the delivery of the respondent's submissions. No reply submissions are to be delivered without leave.

Jane Dietrich
Date: January 20, 2025