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Equity and Trust Law - Institutional and Remedial Constructive Trusts
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Comprehensive notes on Equity and Trusts Law in the UK - Institutional and Remedial Constructive Trusts.
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EQUITY & TRUSTS REVISION NOTES1. INTRODUCTION TO CONSTRUCTIVE TRUSTS:
WHAT ARE CONSTRUCTIVE TRUSTS?
• CONSTRUCTIVE TRUST: a constructive trust arises by operation of law, without regards to the
intention of the parties. Like any other trust, the constructive trustee holds the legal title to
property that is held for the benefit of the beneficiaries.
• The etymology of ‘constructive’ trusts: rather than constructing, constructive trusts refer to
construing, i.e. reading a set of circumstances or facts and interpreting what they mean.
WHAT ARE THE DIFFERENT TYPES OF CONSTRUCTIVE TRUST?
• INSTITUTIONAL CONSTRUCTIVE TRUST: when a constructive trust is treated as arising by
operation of law, on the occurrence of a recognised circumstance that typically gives rise to a
constructive trust. Under this category, the court simply recognises a pre-existing equitable
proprietary interest and thus, that the trust has already arisen.
! Typically, these are based on unconscionability.
• REMEDIAL CONSTRUCTIVE TRUST: a constructive trust can be awarded as a remedy where the
court considers it appropriate that the defendant should hold property on trust for the claimant.
The equitable proprietary interest is created upon the exercise of judicial discretion.
! Typically, these are based on unjust enrichment.
• CONSTRUCTIVE TRUST AS A REMEDY: where the claimant has an existing equitable interest in a
property that has been misappropriated and received by a third-party defendant. The claimant
can recover the property through the constructive trust: the court will order that the defendant
holds the property on constructive trust for the claimant, who can then call for the property to be
transferred to them. The constructive trust operates as a remedial mechanism here, but it is distinct
from the remedial constructive trust, because there is a pre-existing equitable proprietary
interest.
Foskett v McKeown: the trustee misappropriated the trust fund, in order to pay premium on life
insurance. The court emphasised that a constructive trust as a remedy is not a matter of court discretion – the
court merely gives recognition to existing proprietary rights.
• LIABILITY TO ACCOUNT AS A CONSTRUCTIVE TRUSTEE: where a third party is involved in the
trustee’s breach, there are two equitable causes of action for their liability: actions for
unconscionable receipt of property in breach of trust; and dishonestly assisting a breach of
trust. The liability in these claims is a liability to account as a constructive trustee. The defendant’s
liability will be a personal liability, either to restore the value of the property received in breach
of trust (the value of the property will be traced into the hands of the third party, through the
tracing mechanism). or to compensate the claimant for the loss they suffered because of their
assistance.
! Tracing: the process of identifying the property that is in the hands of third parties and its value.
HEADINGS
SUBHEADINGS | FURTHER SUBHEADINGS
KEY TERMS
KEY INFORMATION
CASES
, EQUITY & TRUSTS REVISION NOTES
• COMMON INTENTION CONSTRUCTIVE TRUST: a trust that arises from an agreement/
understanding by the parties, as to whether they have a beneficial interest in the property and if
so, what the extent of the interest might be. This trust is triggered in response to the express,
implied or imputed intention of the parties.
HOW DO CONSTRUCTIVE TRUSTS DIFFER FROM OTHER TRUSTS?
• This lack of regard for the parties’ intentions distinguishes constructive trusts from express trusts,
which are created by the settlor’s actual intent, and resulting trusts, which are triggered by the
transferor’s imputed or implied intention that the property is to be held on trust for them.
WHAT IS THE ARISING OF A CONSTRUCTIVE TRUST IN RESPONSE TO?
THEORETICAL PERSPECTIVES:
• The question of is a controversial question, encompassed by various viewpoints:
(i) Some, such as Birks (in Unjust Enrichment), believe that the constructive trust is a response to the
defendant’s unjust enrichment.
! However, generally, the better view of the doctrine of unjust enrichment is that it should only trigger
personal remedies, rather than create equitable proprietary interests.
(ii) In the 1970s, judges, led by Lord Denning, used the constructive trust as a remedy to create
equitable property rights, where justice and good conscience demanded it.
! This is riddled with uncertainty.
(iii) In Westdeutsche Landesbank Girozentrale v Islington LBC, Lord Browne-Wilkinson recognised
that the defendant’s unconscionability underpins the recognition of the constructive trust in all
cases.
! Sir Terence Etherton noted that unconscionability is a significant trigger for constructive trusts, but it is not
the trigger in all cases.
(iv) Lord Scott, in Cobbe v Yeoman’s Rowe Management Ltd, recognised that it is not possible to
prescribe all the circumstances under which a constructive trust will be triggered; thus, the focus
should be placed on factual circumstances where the constructive trust will and will not
arise.
CIRCUMSTANCES IN WHICH A CONSTRUCTIVE TRUST WILL ARISE, ACCORDING TO LORD MILLET:
• Generally, there are two main circumstances in which a constructive trust will arise. These are
recognised by Lord Millett in Paragon Finance plc v DB Thakerar & Co:
DIRECT QUOTE:
→ “[1] where the defendant, though not expressly appointed as trustee, has assumed the duties of a
trustee by a lawful transaction which was independent of and preceded the breach of trust and is
not impeached by the plaintiff; [2] where the trust obligation arises as a direct consequence of the
unlawful transaction which is impeached by the plaintiff.”
EXPLANATION:
1. When it turns out that the defendant is not an express trustee but as there has been a lawful turn
of events, a constructive trust has been created to smooth things over.
HEADINGS
SUBHEADINGS | FURTHER SUBHEADINGS
KEY TERMS
KEY INFORMATION
CASES
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