Constructive Trusts
Tuesday, 29 March 2022 14:21
TI 1
Constructive trusts - a definition?
- 'English law provides no clear and all-embracing definition of a constructive trust. Its
boundaries have been left perhaps deliberately vague, so as not to restrict the court by
technicalities in deciding what the justice of a particular case may demand.' - Edmund Davies
LJ in Carl Zeiss Stiftung v Herbert Smith & Co [1969] 2 Ch 276
- Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400:
○ 'A constructive trust arises by operation of law whenever the circumstances are such
that it would be unconscionable for the owner of property… to assert his own beneficial
interest in the property and deny the beneficial interest of another' - Per Millett LJ
So what are they?
- They arise 'by operation of law'
- Imposed on the legal owner of property (real or personal) when they have dealt with that
property 'unconscionably'
○ The legal owner holds the property on constructive trust for the wronged person(s)
- It gives the wronged person a proprietary interest in the trust property
○ Not just a financial claim against the wrong-doer
Remedy or trust?
- Rationale 1 - the Institutional Constructive Trust
○ They arise by operation of law on the date of the originating circumstances
○ The Court merely recognises its existence
○ Rules of law determine the consequences (especially on third parties)
▪ E.g. proprietary claim fails against a BFP
○ Because of these rules of law there is no discretion as to the consequences
- Rationale 2 - the Remedial Constructive Trust
○ A judicial remedy giving rise to an enforceable equitable obligation
○ The extent to which it operates retrospectively 'lies in the discretion of the court' (Lord
Browne-Wilkinson in Westdeutsche Landesbank v Islington BC [1996] AC 669)
Which is the preferred view?
- In England and Wales, the view is that we have an institutional constructive trust
○ See Westdeutsche Landesbank
- Thus the trust arises at the moment of unconscionability
- This can be important on, e.g. the trustee's insolvency
○ The beneficiary of the CT will be able to claim a proprietary interest in the trustee's
property
Examples of constructive trusts
- Rochefoucald v Bousted [1897]
○ Intended trustee acquired property for the supposed beneficiary but the trust was
improperly created
○ Trustee held property on constructive trust
- FHR European Ventures LLP v Cedar Capital Partners LLC [2014] SC
○ An agent who received a bribe or secret commission as a result of his position held it on
constructive trust for his principal
Constructive trusts of the family home - existence of a trust
- As with all constructive trusts, finding a trust is based on unconscionability
- The starting point in relation to the family home is:
○ Gissing v Gissing [1971] AC 886
▪ There needs to be:
Equity and Trusts Page 1
, ▪ There needs to be:
□ Evidence of a common intention to share
□ Detrimental reliance
- The burden of proof is on the non-owner
Lord Denning's 'New Model Constructive Trust'
- Hussey v Palmer [1972] EWCA Civ 1
○ 'It is a trust imposed by law whenever justice and good conscience require it. It is a
liberal process, founded upon large principles of equity, to be applied in cases where the
legal owner cannot conscientiously keep the property for himself alone, but ought to
allow another to have the property or the benefit of it or a share in it. The trust may
arise at the outset when the property is acquired, or later on, as the circumstances may
require. It is an equitable remedy by which the court can enable an aggrieved party to
obtain restitution.'
Eves v Eves [1975] 1 WLR 1338
○ Janet Eves was told that the house could not be in joint names as she was under 21 (an
excuse)
○ Lord Denning: She did a great deal of work to the house and garden. She did much more
than many wives would do. She stripped the wallpaper in the hall. She painted
woodwork in the lounge and kitchen. She painted the kitchen cabinets. She painted the
brickwork in the front of the house. She broke up the concrete in the front garden. She
carried the pieces to a skip. She, with him, demolished a shed and put up a new shed.
She prepared the front garden for turfing.
○ Lord Denning: The problem in this case is a familiar one. It often happens that a man and
a woman set up house together and have children… They [do not marry but] live as
husband and wife. They get a house; but it is put in his name alone. Then, before they
get married, the relationship breaks down. In strict law she has no claim on him
whatever. She is not his wife. He is not bound to provide a roof over her head. He can
turn her into the street. She is not entitled to any maintenance from him for herself…
Such is the strict law.
○ And a few years ago even equity would not have helped her. But things have altered
now. Equity is not past the age of child-bearing. One of her latest progeny is a
constructive trust of a new model. Lord Diplock brought it into the world and we have
nourished it.
Criticism of the Denning view
- Grant v Edwards [1986] Ch 638
○ The decision in Eves was 'at variance with the principles stated in Gissing v Gissing'
- Springette v Defoe [1992] 2 FLR 388
○ 'The court does not as yet sit, as under a palm tree, to exercise a general discretion to do
what the man in the street, on a general overview of the case, might regard as fair'
Lloyds Bank v Rosset [1991] AC 107
○ Lord Bridge's judgement
○ The common intention to share could arise:
▪ Expressly, or
▪ By implication / inference
▪ BUT NOT BY IMPUTED COMMON INTENTION
○ So the court will not simply do what is 'fair'
Express common intention to share
- Were there express discussions between the parties?
- Express agreement cases cited in Rosset
○ Eves v Eves [1975]
○ Grant v Edwards [1986]
- Although note that both of these are 'excuse' cases
Equity and Trusts Page 2
Tuesday, 29 March 2022 14:21
TI 1
Constructive trusts - a definition?
- 'English law provides no clear and all-embracing definition of a constructive trust. Its
boundaries have been left perhaps deliberately vague, so as not to restrict the court by
technicalities in deciding what the justice of a particular case may demand.' - Edmund Davies
LJ in Carl Zeiss Stiftung v Herbert Smith & Co [1969] 2 Ch 276
- Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400:
○ 'A constructive trust arises by operation of law whenever the circumstances are such
that it would be unconscionable for the owner of property… to assert his own beneficial
interest in the property and deny the beneficial interest of another' - Per Millett LJ
So what are they?
- They arise 'by operation of law'
- Imposed on the legal owner of property (real or personal) when they have dealt with that
property 'unconscionably'
○ The legal owner holds the property on constructive trust for the wronged person(s)
- It gives the wronged person a proprietary interest in the trust property
○ Not just a financial claim against the wrong-doer
Remedy or trust?
- Rationale 1 - the Institutional Constructive Trust
○ They arise by operation of law on the date of the originating circumstances
○ The Court merely recognises its existence
○ Rules of law determine the consequences (especially on third parties)
▪ E.g. proprietary claim fails against a BFP
○ Because of these rules of law there is no discretion as to the consequences
- Rationale 2 - the Remedial Constructive Trust
○ A judicial remedy giving rise to an enforceable equitable obligation
○ The extent to which it operates retrospectively 'lies in the discretion of the court' (Lord
Browne-Wilkinson in Westdeutsche Landesbank v Islington BC [1996] AC 669)
Which is the preferred view?
- In England and Wales, the view is that we have an institutional constructive trust
○ See Westdeutsche Landesbank
- Thus the trust arises at the moment of unconscionability
- This can be important on, e.g. the trustee's insolvency
○ The beneficiary of the CT will be able to claim a proprietary interest in the trustee's
property
Examples of constructive trusts
- Rochefoucald v Bousted [1897]
○ Intended trustee acquired property for the supposed beneficiary but the trust was
improperly created
○ Trustee held property on constructive trust
- FHR European Ventures LLP v Cedar Capital Partners LLC [2014] SC
○ An agent who received a bribe or secret commission as a result of his position held it on
constructive trust for his principal
Constructive trusts of the family home - existence of a trust
- As with all constructive trusts, finding a trust is based on unconscionability
- The starting point in relation to the family home is:
○ Gissing v Gissing [1971] AC 886
▪ There needs to be:
Equity and Trusts Page 1
, ▪ There needs to be:
□ Evidence of a common intention to share
□ Detrimental reliance
- The burden of proof is on the non-owner
Lord Denning's 'New Model Constructive Trust'
- Hussey v Palmer [1972] EWCA Civ 1
○ 'It is a trust imposed by law whenever justice and good conscience require it. It is a
liberal process, founded upon large principles of equity, to be applied in cases where the
legal owner cannot conscientiously keep the property for himself alone, but ought to
allow another to have the property or the benefit of it or a share in it. The trust may
arise at the outset when the property is acquired, or later on, as the circumstances may
require. It is an equitable remedy by which the court can enable an aggrieved party to
obtain restitution.'
Eves v Eves [1975] 1 WLR 1338
○ Janet Eves was told that the house could not be in joint names as she was under 21 (an
excuse)
○ Lord Denning: She did a great deal of work to the house and garden. She did much more
than many wives would do. She stripped the wallpaper in the hall. She painted
woodwork in the lounge and kitchen. She painted the kitchen cabinets. She painted the
brickwork in the front of the house. She broke up the concrete in the front garden. She
carried the pieces to a skip. She, with him, demolished a shed and put up a new shed.
She prepared the front garden for turfing.
○ Lord Denning: The problem in this case is a familiar one. It often happens that a man and
a woman set up house together and have children… They [do not marry but] live as
husband and wife. They get a house; but it is put in his name alone. Then, before they
get married, the relationship breaks down. In strict law she has no claim on him
whatever. She is not his wife. He is not bound to provide a roof over her head. He can
turn her into the street. She is not entitled to any maintenance from him for herself…
Such is the strict law.
○ And a few years ago even equity would not have helped her. But things have altered
now. Equity is not past the age of child-bearing. One of her latest progeny is a
constructive trust of a new model. Lord Diplock brought it into the world and we have
nourished it.
Criticism of the Denning view
- Grant v Edwards [1986] Ch 638
○ The decision in Eves was 'at variance with the principles stated in Gissing v Gissing'
- Springette v Defoe [1992] 2 FLR 388
○ 'The court does not as yet sit, as under a palm tree, to exercise a general discretion to do
what the man in the street, on a general overview of the case, might regard as fair'
Lloyds Bank v Rosset [1991] AC 107
○ Lord Bridge's judgement
○ The common intention to share could arise:
▪ Expressly, or
▪ By implication / inference
▪ BUT NOT BY IMPUTED COMMON INTENTION
○ So the court will not simply do what is 'fair'
Express common intention to share
- Were there express discussions between the parties?
- Express agreement cases cited in Rosset
○ Eves v Eves [1975]
○ Grant v Edwards [1986]
- Although note that both of these are 'excuse' cases
Equity and Trusts Page 2
