Constructive Trust
What is a constructive trust?





Swadling: Constructive trust is simply a remedy; it is not there before the court
declares it.
There is no such thing as a constructive trust. It is a misleading label for various
Supported by Peter Millett (extra judicially): The expression ‘constructive
trustee’ is used to describe the defendant who is liable to be subjected to an
equitable proprietary remedy. To say that he is a constructive trustee of the
property is only another way of saying that he is liable to transfer it in specie to
the plaintiff.
Millet (Dubai Aluminium v Salaam [2003]): I think that we should now discard
the words ‘accountable as constructive trustee’ in this context and substitute the
words ‘accountable in equity’. (Lord Millet talking about the situations in which
the defendant has to pay money to the claimant.)
Reasons for thinking its not a remedy:
o Has duties of Trusteeship
o Arises as the facts happen (institutional), and not on courts discretion

Rationale according to Swadling

Assuming the English view is correct – what events trigger a constructive
trust?
Birks (confirms this isn’t swaddling): four kind of events in the world that
give rise to rights: 1) consent 2) unjust enrichment 3) wrongs 4) other
miscellaneous events. Consent does not apply; consent indicates express trust
(i.e. declaration of trust)
CT as a response to UE?
Unjust enrichment is a label for specific reasons – mistake, duress, undue
influence, failure of consideration, policy motivated restitution
o  Failed ET
o  Unauthorised substitution
o Mistaken transfer
o Chase manhattan: gives rise to CT
o WD-bank: No knowledge at point of receipt – hence no trust at point
of receipt. It would be wrong to impose the duties of a trustee on
someone who doesn’t know he is a trustee.
o IS KNOWLEDGE A SUFFICIENT CONDITION?
o L B-W in WD-Bank: “Although the mere receipt of the moneys, in ignorance of



the mistake, gives rise to no trust, the retention of the moneys after the recipient
bank learned of the mistake may well have given rise to a constructive trust.”
 Suggests yes
o Millet (ExtraJ): By itself notice of the existence of a ground of restitution is
o
o
obviously insufficient to found a proprietary remedy; it is merely notice of a
personal right to an account and payment.
Fraud
L B-W in WD-Bank: Although it is difficult to find clear authority for the
proposition, when property is obtained by fraud equity imposes a constructive
trust on the fraudulent recipient: the property is recoverable and traceable in
equity.
o Unauthorised substitution (tracing)

o I steal ten quid and buy a book. Can you say that I hold the book on
trust for you. Yes! But we don’t exactly know why (the court just use
metaphors).
As a response to wrongdoing?
o Deceit: Halifax Building Society v Thomas
 No CT
o Breach of fid duty: likely yes!
 AG v Reid: As soon as the bribe was received it should have been
paid or transferred instanter to the person who suffered from the
breach of duty. Equity considers as done that which ought to have been
done. As soon as the bribe was received, whether in cash or in kind, the
false fiduciary held the bribe on a constructive trust for the person
injured.








o  Unauthorised substitution
What about transfers subject to pre-existing rights and vendor-purchaser
contracts?
What about family home cases? Responding to intention? CICTs?
o Are they based on ucons / UE + intention
o Are they just RCTs?
My view  Responds the unconscionability or UE, prevention of fraud. On a
high level of abstraction, the common basis that can be found is the
application of the principle: Equity sees as done that which ought to be done!
Parker & Mellows: In the US, courts have regarded the CT as an instrument for
remedying unjust enrichment.
In The UK, the CT continues to be seen as an institutional obligation attaching to
property in certain specified circumstances.
In order to obtain a CT, the ben mist demonstrate some legal or equitable wrong
done by the CTee.
Penner: Constructive trusts (CTs) arise by operation of law but beyond that
there is little to link the various types of CT.
CTs arise in 3 different ways: (1) Those that are based on the maxim “equity
looks upon that as done which ought to be done”; (2) Those which preserve a
beneficiary’s equitable proprietary interest following breach of trust; and (3)
those in which individuals acquire for the first time an interest in another’s
property because of their past relationship with the legal owner.
Q. What is the range of circumstances under which CTs arise? Can they be
explained in a principled way?


Penner: Constructive trusts (CTs) arise by operation of law but beyond that
there is little to link the various types of CT.
CTs arise in 3 different ways:
o 1) Those that are based on the maxim “equity looks upon that as done
which ought to be done”;
o 2) Those which preserve a beneficiary’s equitable proprietary interest
following breach of trust; and
3) Those in which individuals acquire for the first time an interest in
another’s property because of their past relationship with the legal
owner.
1) Those that are based on the maxim “equity looks upon that as done which
ought to be done”;
o Vendor-purchase contracts: Vendor is a CTee for purchaser after the
contract takes place and until the completion of the conveyance
o Rationale: Equity looks upon…
2) Those which preserve a beneficiary’s equitable proprietary interest following
breach of trust; and
o Property given to TP in breach of trust.
o Rationale: 1) Enforce trust/grant beneficiary protection against breach
2) prevent UE of TP when they are not Equity’s Darling?
3) Those in which individuals acquire for the first time an interest in another’s
property because of their past relationship with the legal owner. (MISC
Category)
o Covers a) Acquisition by fiduciaries/ Breach of fiduciary duty
o Rationales:
o Keech / Boardman: To prevent conflict of interest or breach of fiduciary
duties/ UE of Ts
o AG v Reid: To prevent unconscionability/ UE / E holds as done…
o LAC Minerals/Banner Homes: Unconscionability, but is that all that is
required in these cases? If yes, are they becoming RCTs in disguise
o Property interference – Foskett v McKeown
o FAIMLY HOMES CASES AS WELL
o



Possible Rationales
 Common Intention of parties
 Explains:
 Fails to explain:
 Unjust enrichment/ Unconscionability:
 Explains:
 Fails to explain:
 Equity sees as done that which ought to be done
 Explains quite a lot!
 Explains: Property interference, Acquisition by beneficiaries, Vendor-purchaser
contracts,
 Fails to explain: CT imposed on TP

Question: RCTs  what is there rationale? Are they good or bad?
Championed by Denning! Built on Diplock’s speech in Gissing v Gissing
Re Goldcorp Exchange Ltd  RCTs rejected by Millet for given rise to uncertainty
and prejudicing unsecured creditors.  But what about F home context?
Re Polly Peck (No 2) [1998] Mummery LJ): To a trust lawyer and, even more so to an
insolvency lawyer, the prospect of a court imposing a [remedial constructive] trust is inconceivable.
Stack v Dowden [2007] UKHL 17, [60] (Baroness Hale of Richmond): Suggests
that the Remedial CT may still be alive. Suggesting that the law has moved on by
reference to the decisions of the court of appeal, which is strange because the CA is
lower than the HL.