Executive Summary: Key Legal and Evidentiary Issues

• Plaintiff Kyle Horwood obtained a default judgment of approximately $425,000 against the defendants arising out of unpaid loans and unpaid profits from the sale of two residential properties, and subsequently sought a constructive trust over a separate property (the Evergreen Property) not subject to the original money judgment.

• Deemed admissions arising from the defendants' failure to file a response to the amended claim were held to bind only the defaulting parties and cannot be used to affect the interests of third parties who are not parties to the action.

• No actual evidence was presented to establish that profits from the sale of the Allsbrook Properties were traced into the improvement of the Evergreen Property, an essential requirement for a constructive trust.

• Competing creditors Ken Clarke and Glenis Williams, who held a prior consent judgment of $300,000 against the defendants, opposed the constructive trust application on the basis it would improperly elevate the plaintiff's priority.

• The court noted the plaintiff's cause of action may have merged with the earlier final judgment, potentially precluding the later constructive trust claim, though this ground was not ultimately relied upon.

• Proper procedure required the constructive trust claim to be brought in a separate action where all owners and chargeholders of the Evergreen Property would be named as parties, rather than as an add-on application in existing litigation.

The contractual arrangement and the unpaid profits
On February 14, 2020, Kyle Horwood and Mark Hanna signed a one-page contract for the building of two homes in Allsbrook Estates, located in Errington, British Columbia. Under the terms of the agreement, Mr. Horwood was to lend $200,000 to Mr. Hanna in four instalments of $50,000 each. In return, upon the completion and sale of the two residential properties, Mr. Horwood would be repaid the loan amounts plus 25 percent of the profits. Although the contract named Mr. Hanna as the contracting party, title to the Allsbrook Properties was registered in the name of the corporate defendant, Mark Hanna Holdings Ltd.
Mr. Hanna repaid the total loan amount. However, he did not pay the amounts due for 25 percent of the profits when the two properties were sold — one on August 25, 2021 for $1,540,000 and the other on January 18, 2022 for $1,697,000. Mr. Horwood filed a notice of civil claim on October 28, 2022, advancing a straightforward claim in debt and breach of contract.

Defendants' default and the amended claim
Counsel for the defendants withdrew in December 2024, and although Mr. Hanna was examined for discovery by the plaintiff in January 2025, neither defendant attended any subsequent court hearings. On May 1, 2025, the court ordered the defendants to provide responses to the questions left outstanding from Mr. Hanna's examination for discovery by May 15, 2025, failing which the plaintiff was at liberty to apply for orders striking the response to civil claim and dismissing the counterclaim. On the same date, Mr. Horwood filed an amended notice of civil claim, now alleging that the defendants "improperly used the funds of the Profit Debt to pay for the development" of a different property located on Evergreen Way (the "Evergreen Property"). On June 26, 2025, the court ordered the defendants' response struck and judgment entered against the defendants "with damages to be assessed," and the court also struck what remained of the counterclaim.

The Evergreen Property and competing creditors
Land title documents showed that Mr. Hanna and Mark Hanna Holdings Ltd. acquired the Evergreen Property on January 15, 2021, holding title as tenants in common with each owning an undivided half interest. On February 26, 2021, the Hanna defendants entered into a contract with Ken Clarke and Glenis Williams for the construction of a three-bedroom rancher-style home on the Evergreen Property in return for a payment of $1.2 million, with a completion date of March 31, 2022. Mr. Clarke and Ms. Williams paid a deposit of $200,000, and other amounts were to be paid according to certain milestones. Their $200,000 deposit was used to build the house that they were to buy.
In January 2023, the defendants demanded that Mr. Clarke and Ms. Williams pay an additional deposit and a higher purchase price for the house and property. Mr. Clarke and Ms. Williams refused those demands and the sale collapsed. They then filed a notice of civil claim on March 30, 2023 seeking specific performance and damages. That lawsuit was settled by way of a consent judgment for $300,000 filed on March 6, 2025, with the entire judgment to be paid no later than May 15, 2025. The defendants failed to make any payments towards the consent judgment. Mr. Clarke and Ms. Williams registered their judgment against the Evergreen Property on May 16, 2025 and took steps to have the property sold pursuant to the Court Order Enforcement Act, R.S.B.C. 1996, c. 78. The registrar reported on the state of title and the various charges registered against the Evergreen Property, which included a mortgage, two builders liens, three certificates of pending litigation, and the Clarke/Williams judgment. On October 10, 2025, the mortgagee, All Island Equity Mortgage Investment Corp., filed a petition for foreclosure. By December 8, 2025, a receiver-manager had been appointed over the Evergreen Property by order made in the foreclosure proceeding.

The plaintiff's application for a constructive trust
On September 4, 2025, Mr. Horwood filed a notice of application seeking an order quantifying damages at $424,570.29 and also seeking an order declaring that he had a beneficial interest in the Evergreen Property. The accompanying affidavit detailed the evidence and calculations giving rise to the claimed figure, but there was no affidavit evidence relating to the beneficial interest claim. On October 1, 2025, Mr. Justice Baird gave judgment in the amount sought but adjourned the application for an order declaring a beneficial interest in the Evergreen Property and directed that creditors and lienholders associated with the Evergreen Property be given notice. When the matter returned to court on November 17, 2025, counsel appeared on behalf of Mr. Clarke and Ms. Williams to oppose the relief sought by Mr. Horwood.
The plaintiff argued that a substantive constructive trust arose because the defendants had improperly used the funds of his profit entitlement to develop the Evergreen Property, and their failure to file a response to the amended notice of civil claim meant the facts asserted therein were deemed to be admitted. He emphasized the distinction between a substantive constructive trust and a remedial constructive trust, noting that a substantive constructive trust arises where funds entrusted to a defendant are used for an improper purpose and, if converted into other property, the plaintiff has the right to trace the misappropriated funds into that property. He relied on case law including B.C. Teachers' Credit Union v. Betterly, Tracy v. Instaloans Financial Solutions Centres (B.C.) Ltd., Batth v. Sharma, and Li v. Li as examples of courts imposing constructive trusts where funds were misappropriated and traced into other property.
Mr. Clarke and Ms. Williams countered that the Evergreen Property was purchased long before either of the Allsbrook Properties were sold, and therefore no profits from those sales could have been used to acquire the Evergreen Property. They argued there was no actual evidence that any of the profits derived from the sale of the Allsbrook Properties were used to improve the Evergreen Property, as the plaintiff relied solely on deemed admissions. They further submitted that the conditions for the imposition of a constructive trust described in Soulos v. Korkontzilas had not been met: there was no equitable relationship between Mr. Horwood and the Hanna defendants as they were arm's length participants in a commercial contract; there was no actual or deemed agency relationship; there was no legitimate equitable reason to impose a proprietary remedy as contractual damages adequately addressed the claim; and it would be unjust to impose a constructive trust that would defeat their priority in circumstances where their deposit was directly used to develop the Evergreen Property. They also noted that lien claimants' interests would be adversely affected.

The court's ruling and outcome
The Honourable Mr. Justice Blok dismissed the plaintiff's application on March 17, 2026, with reasons issued on March 20, 2026. The court concluded that the application must fail on grounds other than the constructive trust arguments advanced by the parties. The plaintiff led no evidence that any profits from the sale of the Allsbrook Properties were used to improve the Evergreen Property, relying instead on deemed admissions arising from the failure of the defendants to file a response to the amended notice of claim. The court held that these are admissions against the defaulting parties only and are not proof of those facts against third parties, and the claim for a constructive trust must fail as a result. Additionally, the court found that the proper course would have been for the plaintiff to bring his constructive trust claim in a separate action, where all owners and chargeholders of the Evergreen Property would be parties to the action and not mere interested bystanders. The court also observed — though it did not rest its decision on this point — that the plaintiff's claim for a constructive trust may have merged with the judgment he obtained earlier such that it could not now be pursued. Mr. Clarke and Ms. Williams were the successful parties on the application, and the court ordered that they recover one set of costs from the plaintiff. The exact quantum of those costs was not determined, as the overall costs of the proceeding had not yet been argued or addressed and were adjourned. Mr. Horwood's earlier default judgment of $424,570.29 against the defendants remained intact, but his application for a constructive trust over the Evergreen Property was dismissed.