1. What are constructive trusts?
2. What are the requirements for remedies under a constructive trust?
3.
ConstructivetrustsinEnglishlawareaformoftrustcreatedbythecourtsprimarilywherethedefendant
hasdealtwithpropertyinan"unconscionablemanner",butalsoinothercircumstances;thepropertywill
beheldin"constructivetrust"fortheharmedparty,obligingthedefendanttolookafterit.Themain
categoriesoffactorsgivingrisetoaconstructivetrustareunconscionabledealingswithproperty,profits
fromunlawfulacts,andunauthorisedprofitsbyafiduciary.Wheretheownerofpropertydealswithitina
wayastodenyorimpedetherightsofsomeotherpersonoverthatproperty,thecourtswillorderthat
ownertoholditinconstructivetrust.Whereprofitsaremadefromunlawfulacts,suchasmurder,fraud,or
bribery,theseprofitswillalsobeheldinconstructivetrust.Themostcommonoftheseisbribery,which
requiresthatthepersonbeinafiduciaryoffice.Certainoffices,suchasthoseoftrusteeandcompany
director,arealwaysfiduciaryoffices;thecourtsmaychoosetorecogniseotherswherethecircumstances
demandit.Wheresomeoneinafiduciaryofficemakesprofitsfromtheirdutieswithouttheauthorisationof
thatoffice'sbeneficiaries,aconstructivetrustmaybeimposedonthoseprofits;thereisadefencewherethe
beneficiarieshaveauthorisedsuchprofits.Thejustificationhereisthatapersoninsuchanofficemust
avoidconflictsofinterest,andbeheldtoaccountshouldhefailtodoso.
Other types of constructive trust not relating to unconscionable dealings are constructive trusts over
property,mutualwills,andarguablysecrettrusts.Wherepropertyissoldortransferred,thesigningofan
agreement to do so automatically transfers the equitable interest to the buyer or transferee; until the
propertyitselfistransferred,itisdeemedtobeheldonconstructivetrustfortherecipient.Mutualwillsare
irrevocablewillsmadebymultiplepeopletocomeintoforceatthewriter'sdeath;similarly,thesearealso
consideredconstructivetrusts.Secrettrustsarethesubjectofmuchdebateovertheirclassification,butone
theoryholdsthemtobeconstructiveinnature.Relatedtoconstructivetrustsareconstructivetrustees,or
trusteesdesontort;thesearewhere"one,notbeingatrusteeandnothavingauthorityfromatrustee,takes
uponhimselftointermeddlewithtrustmattersortodoactscharacteristicoftheofficeoftrustee". [1]Where
theiractionsarerecklessordishonest,thecourtmakesthatpersonaconstructivetrustee,forcingthemto
accounttothebeneficiariesforanylosssufferedandlookafterthetrustpropertyintheirpossession.
Aconstructivetrustisatrustwhichisimposedbythecourtswheneverthedefendantknowsthathehas
dealt with property in an "unconscionable manner", such as stealing it, possessing it via fraud, and
acceptingabribewhileinoccupationofafiduciaryoffice. [2]Theconstructivetrustisintendedtotakethe
propertyfromthedefendant'scontrol,preventingthemfromcausingadditionalharmwithit.Itthusacts
regardlessoftheparties'intentions.InParagonFinanceplcvDBThakerar&Co,[3]MilletLJdefineda
constructivetrustasatrustwhich"arisesbyoperationoflawwheneverthecircumstancesaresuchthatit
wouldbeunconscionablefortheownerofproperty(usuallybutnotnecessarilythelegalestate)toassert
his own beneficial interest in the property and deny the beneficial interest of another". Essentially, a
constructivetrustwillarisewheneveranownereitherignores,orinterferes,withtherightsofanother
personwithaninterestinthatproperty. [4]Thereisadistinctionbetweenpersonalandproprietaryrightsto
property.Aconstructivetrustnormallygivesaproprietaryrighttothebeneficiarythatcanbeenforcedon
anyotherperson.Thealternative(apersonalright)merelygivesthebeneficiarytherighttorecovermoney
equivalenttothevalueoftheproperty.[5]
Constructivetrusts,underSection53(2)ofthe LawofPropertyAct1925,donotrequireanyparticular
formalitiesoncreation,unlikeexpresstrusts.Forthemtobevalid,however,thedefendant(or"trustee"of
the constructive trust) must know that he has dealt with property in an "unconscionable manner". In
Westdeutsche Landesbank v Islington London Borough Council,[6] Lord BrowneWilkinson wrote that
"Sincetheequitablejurisdictiontoenforcetrustsdependsupontheconscienceoftheholderofthelegal
interestbeingaffected,hecannotbeatrusteeofthepropertyifandsolongasheisignorantofthefacts
allegedtoaffecthisconscience".[7]
Reasons
Unconscionabledealingswithproperty
Whentheownerofpropertydealswithitinsuchawayastodenyorimpedetherightsofsomeother
personoverthatproperty,thecourtswillorderthatownertoholditonconstructivetrust.Fortrustsofreal
property,constructivetrustsmayariseinoneofthreesituations.First,whenthepartiesformanagreement
tobuytheland,orshow"commonintention"byjointlycontributingtothepriceormortgageofaproperty,
asin LloydsBankplcvRosset.[8] Second,whenacontracttotransferrightsisagreedto,theequitable
interest is automatically transferred, [9] something that also applies to personal property.[10] Third, a
constructivetrustmaybecreatedwherethereareseveralpartiesinterestedincommerciallyexploitingland,
andsomerefrainfromdoingsoduetoanagreementwiththedefendant,asin PallantvMorgan.[11] In
BannerHomesGroupplcvLuffDevelopmentsLtd,[12]itwasdecidedthatthisprincipleappliesevenwhen
nobindingcontracthasbeensigned,andtheclaimanthasrefrainedduetoongoingnegotiationswiththe
defendant.[13]
Another "more contentious" form of constructive trust isina situationwhere the claimant has "done
everythingnecessary".Wheretheownerofpropertyintendstotransferpropertytoanother,completestheir
sideofthetransferandthetransferthenfails,thispropertywillbeheldonconstructivetrustasin ReRose.
[14][15]
Inrelationtopersonalproperty,aconstructivetrustwillbecreatedoverafundcreatedtoprotectpre
payments to a company in the event of that company going into insolvency. In several situations,
companies,knowingtheyareindirefinancial straits,haveput moneypaidtothem bycustomersfor
productsnotyetdeliveredinaseparatebankaccounttoprotectitintheeventofinsolvency.Thiscauses
theoreticalproblems;itis"difficulttosquaretheconscionabilityofholdingthemoneyontrustforthe
customerswiththeparipassuprincipleininsolvencylawthatnounsecuredcreditorshouldbegivenan
advantageoveranyotherunsecuredcreditor".[16]
Profitsfromunlawfulacts
Whereactsleadtoprofitandareillegal,undereitherEnglishcriminallaworanestablishedlegalprinciple,
equityputsanypropertyacquiredthroughtheseactsintoaconstructivetrust.Themostcommontypeof
trusthereisoneresultingfrombribery;wheresomebodyinafiduciaryofficemakesunlawfulprofit,that
moneywillbeheldonconstructivetrustforthebeneficiariesofhisoffice. [17]InAttorneyGeneralforHong
KongvReid,[18]theDirectorofPublicProsecutionsinHongKongacceptedbribestonotprosecutecertain
people.Thecourtheldthatthiswasaviolationoffiduciaryduty,andputthemoneyonconstructivetrust.
An issue with this principle is that the position of Director of Public Prosecutions is not normally
understoodtobeafiduciaryone.Rather,thecourtsareusingfiduciarydutiesasamethodofpunishingthe
defendant;AlastairHudsonwritesthattheyare"asconcernedtopunishthewrongdoerastoprotectrights
inproperty".[19]
Whetherornotsomeoneisafiduciarydependsontheirposition.Trustees,companydirectors,agentsand
businesspartnersareallfiduciaries,asinYugraneftvAbramovich,[20]butotherpositionsmayberecognised
bythecourtifthemisuseofpowersinaparticularcircumstancerendersthemso,asin Reid.InBrink'sLtd
vAbuSaleh(No.3),[21] asecurityguardwhowasbribedtogiveinformationonacompany'ssecurity
systems,allowingagangofarmedrobberstoburgletheirwarehouse,wasfoundtobeinafiduciary
position.Whileasecurityguardwouldnotnormallybeafiduciaryduetonotholdingaseniorenoughrole,
inrelationtosecurityarrangementstheguardwouldbefoundtobeactinginafiduciarycapacity. [22]Bribes
mayalsobesynonymouswith"secretcommissions",wheresomebodyisgivenanundisclosed"kickback".
[23]
Murderwillmakethekilleraconstructivetrusteeofwhateverpropertytheyacquireasaresult.This
appliestomurder,asinIntheEstateofCrippen,[24]incitingsomeonetomurder,asinEvansvEvans,[25]and
causing death by reckless driving, as in R v Seymour (Edward).[26] In Re K,[27] it was confirmed that
involuntarymanslaughterwillnotrequireconstructivetrusts,andneitherwillsituationswherethereisa
successful plea of insanity, as in found in Section 1 of the Criminal Procedure (Insanity) Act 1964.
Curiously, there is no requirement that the defendant be found guilty in criminal proceedings; in Re
Sigsworth,[28]itwasdecidedthatclaimscanbebroughtwithoutcriminalproceedingshavingtakenplace
providingthedefendantishelduptothecriminalstandardsofguiltintheequitycase. [29]
Incasesoffraud,thesameprincipleapplies;thepropertyisheldbythefraudsteronconstructivetrustfor
theoriginalowner,unlesstheoriginalownerwasinvolvedinthefraud,asinLonrhoplcvFayed(No.2).[30]
Anexceptiontothisprincipleisfraudulentmisrepresentation,wherethecourtsdisagreeoverwhetherit
immediatelyformsaconstructivetrustorrequiresactionbythevictim.InCollingsvLee,[31]anestateagent
transferredpropertytoanonexistentpurchaser(inrealityanalias)andthenclaimedthatashewasnotthe
transferee,hedidnothavetopaythevendors;itwasheldthatthisfraudulentmisrepresentationmeanthe
heldthepropertyonconstructivetrust.[32]However,inLonrho,MillettJheldthat"Acontractobtainedby
fraudulentmisrepresentationisvoidable,notvoid,eveninequity.Therepresenteemayelecttoavoidit,but
untilhedoesso,therepresentorisnotaconstructivetrusteeofthepropertytransferredpursuanttothe
contact,andnofiduciaryrelationshipexistsbetweenhimandtherepresentee".[33]
Fiduciarymakingunauthorisedprofits
Whereapersoninafiduciaryofficeearnsunauthorisedprofitsasaresultoftheirposition,thismoneywill
beheldonconstructivetrust.[34]ThisprincipleoriginatedwithKeechvSandford,[35]andtherulewasfirst
fullydefinedinBrayvFord,[36]whereLordHerschellsaidthat:
Itisaninflexibleruleofthecourtofequitythatapersoninafiduciaryposition...isnot,unlessotherwise
[authorised,]entitledtomakeaprofit;heisnotallowedtoputhimselfinapositionwherehisinterestand
dutyconflict.Itdoesnotappeartomethatthisruleis,ashadbeensaid,foundeduponprinciplesof
morality.Iregarditratherasbasedontheconsiderationthat,humannaturebeingwhatitis,thereisdanger,
insuchcircumstances,ofthepersonholdingafiduciarypositionbeingswayedbyinterestratherthanby
duty,andthusprejudicingthosewhomhewasboundtoprotect.Ithas,therefore,beendeemedexpedientto
laydownthispositiverule.[37]
Thequestionsthenarefourfold;whatisthejustificationforsuchaconstructivetrust,howcanauthorisation
beacquired,whodoesthefiduciaryowedutiesto,andwhataretheremediesforunauthorisedprofit
making.ThemaincaseonthisisBoardmanvPhipps,[38]wheretheHouseofLordsespousedtwopossible
justifications:
Thefirstoneisthatitisastrictrulethatafiduciarycannotallowforaconflictofinterest.
Assuch,ifafiduciarydoesdoso,hewillberequiredtoaccounttothebeneficiariesof
hisoffice,regardlessofwhetherornotheisactinginbadfaith.[39]
ThesecondjustificationisonegivenbyLordsHodsonandGuestinBoardman,which
concernedtheuseofconfidentialinformationbyatrusteeforthetrustee'spersonalgain.
Hodson and Guest held that where such a situation arises, the constructive trust is
justifiednotonlytoavoidconflictsofinterestbutalsobecausesuchinformationistrust
property,andusingitforpersonalgainismisuse.[40]
Thereisnorequirementthattheprofitbedirectlymadefromthefiduciaryposition,merelyinawaythat
causesaconflictbetweenthefiduciary'spersonalinterestsandhisduties.Ifatrusteewasinformedbythe
trust'sstockbrokerthatonlyoneparcelofhighlysoughtafterstocksremainedandchosetopurchaseitfor
himselfratherthanforthetrust,hewouldbetakingadvantageofthetrustandcausingaconflictofinterest.
Onthesecondissue, Boardman confirmedadefenceofauthorisation;ifthefiduciaryhasinformedthe
beneficiariesthatheisandwillbeactingonhisownbehalf,andreceivedpermissiontodoso,theproperty
wouldnothavebeenheldonconstructivetrust. [41]Thethirdissueiswhodoesthefiduciaryowedutiesto.
InBoardmanthecasewasconcerningatrust,anditwasheldthatthedutiesweretowardsthebeneficiaries.
Section170oftheCompaniesAct2006providesthatinsituationsconcerningcompanies,thedutiesofthe
directorsandotherfiduciariesaretothatcompany.[42]
Whereafiduciaryhasmadeunauthorisedprofits,theremedyisforthoseprofitstobeheldonconstructive
trust.Ifthatprofitisnolongeravailable,thefiduciaryis"liabletoaccount"tothebeneficiaries.InSinclair
Investment HoldingsSAv VersaillesTradeFinance (No.3),[43] RimerJexplainedthat thismeant the
beneficiariesacquirerightsoverthoseprofits,andthetrusteemustpaythatmoneyorthemoney'sworth
backtothebeneficiaries.Iftheprofitsaremixedwithothermoneyorusedtopurchaseproperty,the
beneficiarymay tracethatpropertyandclaimit. [44] Furtherexpansionoftheprinciplewaslatergivenin
FHREuropeanVenturesLLPvCedarCapitalPartnersLLC.[45]
Constructivetrustsrelatingtoproperty
Manyconstructivetrustsrelatethetransferofproperty.Thosetrusts overhomes areknownastrustsof
commonintention,andrelateexclusivelytofamilyhomes.InLloydsBankvRosset,[46]theHouseofLords
set out the circumstances in which a trust of common intention can arise. Firstly, where the parties
demonstratethattherewasanagreementformedbeforetheacquisitionoftheproperty.Secondly,wherethe
partiescontribute tothe purchasepriceor mortgagepaymentsandthereforepracticallydemonstrate a
commonintentiontoclaimanequitableinterest;thissecondformissimilartooneformofresultingtrust
Commonintentiontrustsgrantaclaimantanequitablerighttothehome,calculatedasaproportionofthe
totalvaluethatcorrespondstotheirfinancialcontributions. [47]Thesecondoccasiononwhichaconstructive
trustmayariseoverpropertyiswhereapieceofpropertyissoldortransferred.Thecontracttransfersthe
equitableinterestfromtheoriginalownertotheotherparty,whichtakesplacethroughaconstructivetrust.
This originated with Chinn v Collins,[48] where it was decided that the creation of such a contract
automaticallypassestheequitableinteresttothebuyer,assumingthecontractcanbecompleted.Untilitis
completed,thatpropertyisheldonconstructivetrustbythesellerforthebenefitofthebuyer. [10] This
appliestoboth personal and realproperty,withadditionalrulesforthetransferofrealproperty(land).
Section2oftheLawofProperty(MiscellaneousProvisions)Act1989providesthatthecontractmustbein
writing,whichisnotarequirementforthetransferofpersonalproperty. [49]
Other
Constructivetrustsalsoarisewithmutualwills;willscreatedbytwoormorepeopleatthesametime,with
theintentionthatthewillsarecompletelybinding.Normalwillscanbealteredorrevoked;whenone
signatorytoamutualwilldies,thewillirrevocablybindstheothersignatories.Thisisdependentonseveral
things.Firstly,theremustbeevidenceofacontractbetweenthesignatoriesdemonstratingthateachwould
makeawillinacertainform,andneitherwouldrevokeit,asin WaltersvOlins.[50]Secondly,thewillmust
makeitclearthatitistoapplytotheotherpartyafterdeath.Untiladeathoccurs,thearrangementissimply
acontractandhasnoeffectinequity.[51]
Secret trusts are sometimesconsidered constructive trusts.They do not follow the Wills Act 1837; a
requirementforexpresstrusts.[52] Theargumentisthatitissuchtrustsareintendedtopreventfraudby
statute.Underthisrule,secrettrustswouldbeconstructivetrusts;thereasontheydonothavetofollowthe
WillsActisbecausetheyarecreatedbythecourts. [53] Thisisadifficultargumentwithwhichtojustify
halfsecrettrusts,becausesincethewillmentionsthetrust,fraudisnotdirectlypossible. [53]Amoremodern
argumentisthatsecrettrustsareindependentandoperateoutsidethewill. [54]Thetrustwascreatedbythe
donorandtrusteeduringthedonor'slife,andsimplynotconstituteduntilhisdeath;itdoesnothaveto
followtheWillsAct,becauseitwasnotcreatedbyawill.ThisviewwasexpressedbyMegarryVCinRe
Snowden,[55]wherehesaid"Thewholebasisofsecrettrusts...isthattheyoperateoutsidethewill,changing
nothingthatiswritteninit,andallowingittooperateaccordingtoitstenor,butthenfasteningatrustonto
thepropertyinthehandsoftherecipient".Thissuggeststhatsecrettrustsarenotconstructivetrustsbut
ratherexpresstrusts.[56]
Constructivetrustees
Whennontrusteesinterferewiththeworkingsofanexpresstrusttosuchanextentastoharmit,theycan
bedeemedtobe"constructivetrustees",ortrusteesdesontort.InMaravBrowne,[57]SmithLJstatedthat
"ifone,notbeingatrusteeandnothavingauthorityfromatrustee,takesuponhimselftointermeddlewith
trustmattersortodoactscharacteristicoftheofficeoftrustee,hemaythereforemakehimselfwhatis
calledinlawtrusteeofhisownwrongie,atrustee desontort,or,asitisalsotermed,aconstructive
trustee".[1] For someone to be made a constructive trustee, they must have had the property in their
possessionorcontrolbeforetheapplication,andhaveactedinadishonestorrecklessway.Iffoundliable,
theconstructivetrustwillbeheldtoaccountpersonallytorepayanylosssufferedbythetrustfund,and
willberesponsibleformaintainingthattrustpropertyinhispossession.
OnPeterThornersSteartFarm,Cheddar,Somerset,DavidThorner,secondcousin,workedforPeterfor
30yearsunpaid,aswellasonhisparentsfarm,wherehegothousingandmoney.Heworkedlonghours
andbelievedhewouldinheritthefarm,encouragedbyPetersconductover15years,suchasin1990
givingabonusrelatingtotwoassurancepolicies,sayingThatsformydeathduties.Buttherewasno
explicitpromiseorassurance.PeterleftthefarmtoDavid,andalsomoneytoothers.ButPeterdestroyed
thewillwhenhefelloutwiththeothersanddidnotmakeanewwill.Sothepropertypassedbystatuteto
theothers.Davidclaimedproprietaryestoppel.
TheCourtofAppeal[1](LloydLJ,WardLJandRimerLJ)heldDavidhadnoproprietaryestoppelclaim
becausetherewasneveraclearandunequivocalassurance.
JohnRandallQCheldDavidhadarighttoSteartFarm.
Judgment
TheHouseofLordsheldthattheonlythingthatmatteredwaswhetherareasonablepersoncouldhave
reliedontheconductthatlookedlikeanassurance.
LordHoffmannsaidthatspeakinginobliqueandallusivetermsdoesnotmatterifonecouldreasonably
believeonewasbeinggivenanassurance.WhatmatteredwaswhetherPetersconductwouldreasonably
havebeenunderstoodasintendedtobetakenseriouslyasanassurancewhichcouldbereliedupon.There
wasnorequirementthatPeterintendedDavidtorelyonhim.
8. There was a close and ongoing daily relationsh
have done so.
LordScottheldtotheviewthatproprietaryestoppelcanonlybeusedwheretheassurerbelievestheyhave
orwillhaveverysoonacquiredarightinsomeonesland.Hesaidthoughhewouldnotdisagreeabout
proprietaryestoppel,hewouldfinditeasierandmorecomfortabletoregardDavidsequityasestablished
viaaremedialconstructivetrust.Theelementsofaclaimareclearassurance,reasonablereliance,
substantialdetriment.Proprietaryestoppelbringsuncertainresults,e.g.ifPeterintendedtogiveupthe
farm,butbeforethenhadwantedtousethefarmasahomegivenhisoldage.CaseslikeRamsdenand
Crabbcaneasilybeunderstoodasproprietaryestoppel,buthefindsinheritancecaseseasiertounderstand
asbeingremediedthrougharemedialconstructivetrust,createdbythepartiescommonintention,since
Gissing.LikeGillett.
LordWalkerheldtheelementsforaproprietaryestoppelare(1)apromiseorrepresentationbythe
defendantthattheclaimanthasorwillacquiresomerightinrelationtothedefendantsland(2)the
claimantsreasonablerelianceonthispromise/representation(3)detrimentsufferedbytheclaimantby
reasonofhisrelianceonthatpromise/representation.
LordNeuberger,agreedwithLordWalker,butwishedtostatetheresultinhisownwords.
84. ... Just as a sentence can have one meaning i
v Spurrier (1802) 7 Ves 231, 235-6 and per Lord K
85.Secondly,itwouldbequitewrongtobeunrealisticallyrigorouswhen
86.Thirdly,aspointedoutinargumentbymynobleandlearnedfriendLo
87.Itwasalsoarguedfortherespondentsthat,iftherewasanestoppelas
assurancesmadefromtimetotime,PetermadeitcleartoDavidthathewo
88.Ishouldaddthat,ifPeterhadchangedhismindbeforehedied,theque
89.Beforeturningtothatsecondissue,Ishouldaddthat,evenifPeter's"i
havebeenentitledtoequitablerelief,inthelightofhisfourteenormorey
Uncertainty as to the extent of the property
90.Basedonthereasoningofmynobleandlearnedfriend,LordScottofF
91.Sofarastherelevantfactsofthiscaseareconcerned,theextentofthe
92.InCobbe[2008]1WLR1752,MrCobbedevotedconsiderabletime,e
effectivelyseekingtoinvokeproprietaryestoppeltogiveeffecttoacontra
93.InthecontextofacasesuchasCobbe[2008]1WLR1752,itisreadil
interesthaving[sufficient]certainty".
94.Therearetwofundamentaldifferencesbetweenthatcaseandthiscase
95.Inthiscase,theextentofthefarmmightchange,but,ontheDeputyJu
96.Secondly,theanalysisofthelawinCobbe[2008]1WLR1752wasag
oflandthatlackedboththerequisitestatutoryformalitiesandwas,ina
97.Inthiscase,bycontrast,therelationshipbetweenPeterandDavidwas
98.Inthesecircumstances,IseenothinginthereasoningofLordScottin
99.ThenotionthatmuchofthereasoninginCobbe[2008]1WLR1752w
doubtforthatreasonthattherespondents,rightlyinmyview,eschewedan
