Transcript Constructive Trusts Associate Professor Cameron Stewart Definition • A constructive trust is a trust imposed by law.

Constructive Trusts
Associate Professor Cameron
Stewart
Definition
• A constructive trust is a trust imposed by
law. Because a constructive trust arises by
operation of law, it is often said that the
intention of the parties subject to a
constructive trust is irrelevant to its
application
Definition
• However, as shall become clear below, it
is wrong to state that the intention of the
parties to a relationship is completely
irrelevant to constructive trusts as there
are forms of constructive trust that arise by
way of common intention and agreement.
In that sense it is preferable to say that
intention is not a necessary element of the
constructive trust, as it is for both express
and resulting trusts.
Remedy or institution?
• Property institution: This means that the
express and the resulting trust reflect
defined relationships between parties that
come into existence at a time determined
by the conduct of those parties. Once in
existence, the relationships are governed
by the institution of trust, meaning that
rights, powers and duties of trust should
be exercised and honoured between the
parties.
Remedy or institution?
• A remedy differs from a property institution
in the time of its availability and its
discretionary nature
• If the constructive trust is an equitable
remedy it will exist from the time that an
order is made by the court: Re Polly Peck
International plc (in administration) v
MacIntosh [1998] 3 All ER 812 at 825
Remedy or institution?
• Similarly, if constructive trusts are treated
as an equitable remedy, they will be
discretionary in nature. A judge could
refuse to order a constructive trust if it was
a remedy, whereas if the trust was an
institution it would exist independently of
the judge’s exercise of discretion
Remedy or institution?
• Muschinski v Dodds (1985) 160 CLR 583 at 612–4 ,
Deane J:
• At times, disputing factions have tended to polarise
the discussion by reference to competing rallying
points of ‘remedy’ and ‘institution’. The perceived
dichotomy between those two catchwords has,
however, largely been the consequence of lack of
definition. In a broad sense, the constructive trust is
both an institution and a remedy of the law of equity.
As a remedy, it can only properly be understood in
the context of the history and the persisting
distinctness of the principles of equity that enlighten
and control the common law.
Remedy or institution?
• The use or trust of equity, like equity itself, was
essentially remedial in its origins … Like express
and implied trusts, the constructive trust developed
as a remedial relationship superimposed upon
common law rights by order of the Chancery Court.
It differs from those other forms of trust, however, in
that it arises regardless of intention. For that reason,
it was not as well suited to development as a
conveyancing device or as an instrument of property
law. Indeed, whereas the rationale of the institutions
of express and implied trust is now usually identified
by reference to intention, the rationale of the
constructive trust must still be found essentially in its
remedial function which it has predominantly
retained
Remedy or institution?
• The effect of Deane J’s reclassification has been to allow courts
to choose the time from which a
constructive trust arises, and in that
sense the remedial function of the
trust is given effect through the
imposition of the institution of trust
Remedy or institution?
• The effect of Deane J’s re-classification has
been to allow courts to choose the time from
which a constructive trust arises, and in that
sense the remedial function of the trust is
given effect through the imposition of the
institution of trust
• . If a judge has decided to impose a
constructive trust retrospectively, equity
regards as done what ought to have been
done and the trust is considered to have
existed as an institution from that time
onwards, rather than from the time of the
order
Remedy or institution?
• The problem with the exercise of such
discretion is the uncertainty it generates for
third parties who have an interest in the
property in question. This is particularly the
case in insolvencies where the parties are
jostling for priority to access property to
satisfy their debts
• The institutional view of a constructive trust
might be signficantly unfair to unsecured
creditors who were not aware of the
existence of a constructive trust, but may
nevertheless find their claims cannot be
satisfied because the property is held on trust
Remedy or institution?
• In Parsons v McBain (2001) 109 FCR 120, when
discussing the imposition of common intention
constructive trusts the Full Federal Court held
that the trust was created by the conduct of the
parties and arose at that time, even if that had
the effect of defeating unsecured creditors.
• This has been followed in later cases: Jabbour v
Sherwood [2003] FCA 529; Parianos v Melluish
(Trustee) (2003) 30 Fam LR 524.
• In Clout v Markwell [2003] QSC 91 at [21], it was
said that creditors should be expected to be
aware of constructive trusts which may arise
when the debtor is married or in a de facto
relationship.
Remedy or institution?
In Australian Building and Technical Solutions Pty Ltd v
Boumelhem [2009] NSWSC 460, parents had provided
funds to their son to purchase land and build duplexes
on it, one of which would be transferred into the parents’
names on completion.
Parents had increased the mortgage on their own home to
get the funds.
Property used as security on debts owed by his business.
Business then collapsed
Parents claimed an interest under both a resulting trust (to
secure their initial contribution) and a constructive trust
(for later contributions they made to the building effort).
These claims were resisted by the son’s creditors.
Remedy or institution?
Ward J declared that there was a resulting trust for
the contributions to the purchase price but did
not order a constructive trust over the further
amounts paid by the parents. These amounts
were instead secured by equitable liens which
could then be ranked against the other security
interests held by the creditors.
Differences with express and
resulting trusts
• Millet J in Lonhro v Fayed (No 2) [1991] 4
All ER 961 at 971–2:
• It is a mistake to suppose that every
situation in which a constructive trust
arises the legal owner is necessarily
subject to all the fiduciary obligations and
disabilities of an express trustee.
Differences with express and
resulting trusts
• The second major difference is that
constructive trusts are not always subject to
the requirement of certainty of subject matter
• Giumelli v Giumelli (1999) 196 CLR 101 at
112 Gleeson CJ, McHugh, Gummow and
Callinan JJ, found that some constructive
trusts create or recognise no proprietary
interest but rather impose a personal liability
to account for losses sustained by
constructive beneficiaries. In that situation
there is no identifiable trust property
When do constructive trusts arise?
• institution/remedy dichotomy
• The institutional approach is that it limits
constructive trusts to defined sets of
circumstances and, by doing so, limits the
judge’s discretion in deciding when and
how to adjust a person’s beneficial
entitlements.
When do constructive trusts arise?
• During the 1970s the United Kingdom’s
Court of Appeal, led by Lord Denning MR,
adopted a free-ranging remedial basis for
constructive trusts and came to the view
that a constructive trust is ‘imposed by law
whenever justice and good conscience
require it’: Hussey v Palmer [1972] 3 All
ER 744 at 747
When do constructive trusts arise?
• Later English decisions rejected the new
model of constructive trust: Lloyds Bank v
Rosset [1991] 1 AC 107; [1990] 1 All ER
1111. It never took a foothold in Australia
where it was criticised as a form of ‘palm
tree justice’: Bryson v Bryant (1992) 29
NSWLR 188 at 196, per Kirby P.
When do constructive trusts arise?
• Deane J - Under the law of this country — as, I
venture to think, under the present law of England …
proprietary rights fall to be governed by principles of
law and not by some mix of judicial discretion …,
subjective views about which party ‘ought to win’ …
and ‘the formless void of individual moral opinion’ …
Long before Lord Seldon’s anachronism identifying the
Chancellor’s foot as the measure of Chancery relief,
undefined notions of ‘justice’ and what was ‘fair’ had
given way in the law of equity to the rule of ordered
principle which is of the essence of any coherent
system of rational law. The mere fact that it would be
unjust or unfair in a situation of discord for the owner
of a legal estate to assert his ownership against
another provides, of itself, no mandate for a judicial
declaration that the ownership in whole or in part lies,
in equity, in that other …
Constructive trusts to enforce
agreements
concerning property
• Incomplete contract for the sale of
property - Lysaght v Edwards - equitable
conversion
• 3 quals – specific performance,
unconditional, identified property
Constructive trusts to enforce
agreements
concerning property
• Incomplete gifts – Corin v Patton
• Fraudulent transactions - Avondale
Printers and Stationers Limited v Haggie
[1979] 2 NZLR 124 ; White City Tennis
Club Ltd v John Alexander’s Clubs Pty Ltd
[2009] NSWCA 114
• Secret trusts
Constructive trusts to enforce
agreements
concerning property
• Mutual wills - wills made as part of an
agreement, whereby the parties promise
not to revoke their wills after one of the
other parties dies
• The essential characteristic of mutual wills
is that there be an agreement between the
parties not to revoke their wills
• Barns v Barns (2003) 214 CLR 169
Constructive trusts to enforce
agreements
concerning property
• (i) it is the disposition of the property by
the first party under a will in the agreed
form and upon the faith of the survivor
carrying out the obligation of the contract
which attracts the intervention of equity in
favour of the survivor;
• (ii) that intervention is by the imposition of
a trust of a particular character;
Constructive trusts to enforce
agreements
concerning property
• (iii) the subject-matter is “the property
passing [to the survivor] under the will of
the party first dying” [Birmingham v
Renfrew (1937) 57 CLR 666 at 689];
Constructive trusts to enforce
agreements
concerning property
• (iv) that which passes to the survivor is
identified after due administration by the
legal personal representative [Easterbrook
v Young (1977) 136 CLR 308 at 319-320]
whereupon “the dispositions of the will
become operative”[Attenborough v
Solomon [1913] AC 76 at 83];
• (v) there is “a floating obligation” over that
property which has passed to the survivor
Constructive trusts to enforce
agreements
concerning property
• The essential characteristic of mutual wills
is that there be an agreement between the
parties not to revoke their wills
Constructive trusts to enforce
agreements
concerning property
• Estoppel -Constructive trusts will often be
employed as a way of enforcing the equity
arising in an estoppel
• Before a constructive trust is imposed to
enforce an estoppel, the court should
firstly decide whether there is an
appropriate equitable remedy which falls
short of the imposition of a trust
Constructive trusts to enforce
agreements
concerning property
• Breach of confidence
• Constructive trusts are a major remedy for
breach of confidence, not only for
breaches of agreements to keep
information confidential, but also for
situations where information has been
acquired by stealth
Constructive trusts to enforce
agreements
concerning property
• Common intention to deal with property
• Where parties have entered into a
relationship with a common intention that
property is to be held between them in a
particular way, equity may enforce that
common intention by the imposition of a
constructive trust.
Constructive trusts to enforce
agreements
concerning property
• While the parties may have had a shared
intention or an agreement as to how
property was to be held, such an
agreement may not be enforceable as a
contract because the agreement is not in
writing, or because the parties may not
have evidenced a sufficient intention to
enter into legal relations
Constructive trusts to enforce
agreements
concerning property
• While the parties may have had a shared
intention or an agreement as to how
property was to be held, such an
agreement may not be enforceable as a
contract because the agreement is not in
writing, or because the parties may not
have evidenced a sufficient intention to
enter into legal relations
Constructive trusts to enforce
agreements
concerning property
• Pettit v Pettit [1970] AC 777
• Gissing v Gissing [1971] AC 886; [1970] 2 All
ER 780
• A finding of expressed common intention can
be made on the basis of evidence of intention
prior to or at the time of purpose: Gissing v
Gissing at AC 908; All ER 791. Evidence may
also be admissible of intention in the
immediate aftermath of purchase: Lloyd’s
Bank plc v Rossett [1991] 1 AC 107 at 132
Constructive trusts to enforce
agreements
concerning property
• In the absence of evidence of express
agreement, inferences of a common
intention to grant a beneficial interest will
arise when the party has made a direct
financial contribution to the acquisition of
the property. Indirect contributions, such
as homemaking, will not be considered
unless there was an express agreement to
recognise them
Constructive trusts to enforce
agreements
concerning property
• Midland Bank v Cooke [1995] 4 All ER 562, where
the Court of Appeal found that, once some direct
financial contribution had been made (however
minimal) it was then open to the court to calculate
the beneficial interests on the basis of all contributions, whether direct or indirect
• Oxley v Hiscock [2005] Fam 211
• Stack v Dowden [2007] 2 AC 432
• Abbott v Abbott (Antigua and Barbuda) [2007]
UKPC 53
• Fowler v Barron [2008] EWCA Civ 377
• Morris v Morris [2008] EWCA Civ 257
Constructive trusts to enforce
agreements
concerning property
• The common intention constructive trust
has been recognised and accepted by
Australian courts
• Statements made by the parties such as
‘it’s for you and me’ or ‘this is your house’
our house’ have been taken as sufficient
to prove a common intention to grant a
beneficial interest
Constructive trusts to enforce
agreements
concerning property
• Allen v Snyder (1977) 2 NSWLR 685
• De facto couple purchased a house that was
financed through a loan granted by the War
Homes Services Department. A condition of
granting the loan was that the woman, Allen,
make a declaration that she was financially
dependent on the man, Snyder. An additional
condition of the loan was that the title of the
house should only be held by the man
Constructive trusts to enforce
agreements
concerning property
• During the course of the relationship, Allen
paid for furniture and Snyder made a will
in which his interest in the house was to
be passed to Allen. After the breakdown of
the relationship, Allen claimed that she
was entitled to an equal beneficial share
on the basis that it was the parties’
common intention that she be granted
such an interest.
Constructive trusts to enforce
agreements
concerning property
• Glass JA examined the judgments in Pettitt and
Gissing and accepted that a trust could arise
through the common intention of parties, as long
as the party asserting the interest made some
contribution in reliance on the agreement.
Interestingly, his Honour found that the trust was
an express trust that lacked writing. The trust was
enforceable because it would be fraudulent to
deny the interest that was intended: at 692. Most
importantly, Glass JA stressed that the intention
must be actual or inferred intention. It could not be
an imputed intention; that being an intention
ascribed to the parties by operation of law: at 694.
Constructive trusts to enforce
agreements
concerning property
• The factual evidence pointed out that there
was a common intention that Allen be
granted an interest in the house upon the
occasion of the parties getting married, or on
the death of Snyder. However, there was no
intention to grant her an interest during the
course of the de facto relationship.
Constructive trusts to enforce
agreements
concerning property
• Ogilvie v Ryan [1976] 2 NSWLR 504, an
agreement between a testator and his
housekeeper to grant her a life interest in a
house in his will in return for her services,
was upheld on the basis that it would be
fraudulent to allow the legal title holder to
receive the benefit of care without granting
the agreed beneficial interest
• Compare to Bogdonovic v Koteff
Constructive trusts to enforce
agreements
concerning property
• Clout v Markwell [2003] QSC 91, it was argued
that the wife could not claim an interest in property
(even though there had been a common intention
with her husband) because her husband had not
denied her interest. Instead the husband had gone
bankrupt and the trustee was denying the
existence of the wife’s interest. Aktinson J said
that a common intention constructive trust does
not require there to have been an actual denial,
but rather it arises because such a denial would
be unconscionable. This explanation appears to
bring common intention constructive trusts more in
line with the unconscionability-based construtive
Constructive trusts to remedy
breach of fiduciary duty
• Constructive trusts are the major remedy for
breach of fiduciary duty
• The constructive trust that arises in response to a
breach of fiduciary duty is institutional, in that it
arises on the occurrence of the breach, not the
court order
• Exceptions – loans, voidable contracts, bribes and
secret commissions
• Western Areas Exploration Pty Ltd v Streeter (No
3) [2009] WASC 213
• Michael Wilson and Partners Ltd v Nicholls [2009]
NSWSC 1033
Constructive trusts to remedy
breach of fiduciary duty
• The rule in Keech v Sandford- the rule that
the trustee of a tenancy who obtains a
right to renew that tenancy holds that
renewal on constructive trust for the
beneficiaries
Constructive trusts that arise
against third parties
Third parties (‘strangers’ to trusts) can be
made constructive trustees in three ways:
• 1. by acting as a trustee without authority
(trustee de son tort);
• 2. through knowing receipt of trust
property; and
• 3. through actively assisting in a breach of
trust.
Trustees de son tort
• A trustee de son tort is a person who has
intermeddled in the affairs of the trust
without proper authority and has, in effect,
become a trustee through his or her
wrongdoing
• To qualify as a trustee de son tort the
person must have assumed some
measure of control of the trust property
• Honesty irrelevant
Knowing receipt
In cases of knowing receipt the plaintiff must
prove:
• (1) the defendant has received trust
moneys;
• (2) the defendant knew the moneys paid
were trust moneys; and
• (3) the defendant knew of circumstances
which made the payment a misapplication
of trust moneys.
Knowing receipt
• For a person to have ‘receipt’ requires him
or her to have possession of the trust
property for his or her ‘own use and
benefit’
• Banks will not generally be treated as
having received of funds placed in
accounts, unless they apply the proceeds
to the reduction of an overdraft, or for
security: Evans v European Bank Ltd
[2004] NSWCA 82.
Knowing receipt
• In Baden v Societe Generale pour Favoriser le
Developpment du Commerce et de L’Industrie
en Franc SA [1992] 4 All ER 161 at 235, Peter
Gibson J stated that there were five categories
of knowledge in a recipient that were relevant to
the decision to impose a constructive trust.
Knowing receipt
They were:
• (1) actual knowledge;
• (2) wilfully shutting one’s eyes to the obvious;
• (3) wilfully and recklessly failing to make such
inquiries as an honest and reasonable person
would make;
• (4) knowledge of circumstances which would
indicate the facts to an honest and reasonable
person;
• (5) knowledge of circumstances which would put
an honest and reasonable person on inquiry.
Knowing receipt
The first three categories are often collectively
described as ‘actual knowledge’ while the
last two are jointly referred to as
‘constructive knowledge’
The courts appear to be split between
acceptance of all five categories or with
limiting liability to those cases of actual
knowledge. It has been argued that, in
cases of receipt, the recipient gets the full
advantage of the breach of trust and, as a
result, the liability should be strict
Knowing receipt
The more recent English approach is to treat
the Baden categories of knowledge as
flexible aids to categorisation, rather than
as concrete tests
This relaxation in the use of Baden
categories reached its zenith in BCCI
(Overseas) Ltd v Akindele [2001] Ch 437
Knowing receipt
In Australia, it appears that knowing receipt will
be established in cases 1 to 4 of the Baden
categories, but confusion exists as to whether
the category 5, negligent failure to inquire,
should be included
• Farah Constructions Pty Ltd v Say-Dee Pty
Ltd (2007) 230 CLR 89
• The Bell Group Ltd (in liq) v Westpac Banking
Corporation (No 9) (2009) 70 ACSR 1 at 319
Knowing receipt
Knowing receipt principles have caused
difficulties for the courts when applied to
interests in land under the Torrens system.
In the Torrens system registered interests
can be set aside if they have been
procured by fraud, where fraud refers to
actual fraud, personal dishonesty or moral
turpitude
Knowing receipt
In Macquarie Bank Ltd v Sixty Fourth
Throne Pty Ltd [1998] 3 VR 133, a majority
of the Victorian Court of Appeal decided
that a registered mortgage under the
Torrens system could not be set aside in a
situation where the mortgagee acted
honestly but with constructive knowledge
that the mortgage document was a
forgery, in breach of trust
Knowing receipt
But what if the registered proprietor has
actual knowledge that their interest came via
breach of trust? On this issue the authorities
are split. In Tara Shire Council v Garner
[2003] 1 Qd R 556, a majority of the
Queensland Court of Appeal accepted that
knowing receipt would apply in circumstances
where a registered properietor had actual
knowledge that the property was trust
property and that the registered transaction
was a breach of trust.
Knowing receipt
A similar approach was taken in Koorootang
Nominees Pty Ltd v ANZ Banking Group Ltd
[1998] 3 VR 16 at 105, although that case is
distinguishable because it involved actual
dishonesty on the part of the registered
proprietor, in addition to knowing receipt
Knowing receipt
In contrast, the Full Court of Western Australia
rejected this use of knowing receipt principles in
LHK Nominees Pty Ltd v Kenworthy (2002) 26
WAR 517. Anderson, Steyler and Pullin JJ all
found that, absent ‘Torrens-style’ fraud,
knowledge of a breach of trust would not defeat
a registered interest, and knowing receipt
principles could not be applied to set aside a
registered interest.
• Farah Constructions Pty Ltd v Say-Dee Pty Ltd at
CLR 169;
Knowingly assisting a breach of
trust
• There are three elements to the claim of
knowingly assisting a breach of trust. They
are, first, the defendant must know that a
dishonest and fraudulent design is being
implemented. Second, the defendant must
know that his or her acts have the effect of
assisting the design. Third, the knowledge
of the assistant (or accessory) must be of
actual facts and not knowledge of mere
claims or allegations
Knowingly assisting a breach of
trust
• The requisite type of knowledge in cases of
‘knowing assistance’, therefore involves
complicity in the fraud, and dishonesty involved
in the original breach of trust
• the Baden categories have been discarded in
the United Kingdom for cases of knowing
assistance and replaced with a more general
test of ‘dishonesty’. In Royal Brunei Airlines Snd
Bhd v Tan [1995] 2 AC 378 at 390–1; [1995] 3
All ER 97 at 107, Lord Nicholls stated that the
test of dishonesty was an objective test of
whether the person acted as ‘an honest person
would in the circumstances’ in light of what the
person actually knew at the time, rather than
what a reasonable person would have known
Knowingly assisting a breach of
trust
• The test of dishonesty was further clarified in
Twinsectra Ltd v Yardley [2002] 2 AC 164;
[2002] 2 All ER 377, where a combined test
was proposed, encompassing objective and
subjective elements. The test (as proposed by
Lord Hutton) required a finding that the
defendant’s conduct was dishonest by ordinary
standards of reasonable and honest people,
and that the defendant realised that by those
standards he or she had acted dishonestly.
Lord Millet, was critical of this test in his
dissent, as he believed that this test should not
have to take account of whether the defendant
actually knew he or she was acting dishonestly
Knowingly assisting a breach of
trust
• Barlow Clowes International Ltd (in liq) v
Eurotrust International Ltd [2006] 1 All ER 333 back to objective test
Knowingly assisting a breach of
trust
• In NCR Australia v Credit Connection [2004]
NSWSC 1, Austin J summarised the position at
[168-9] as follows:
What seems to emerge from these
observations is that liability arises where the
defendant has assisted in the trustee's
dishonest and fraudulent design and:
• has actual knowledge of the dishonest and
fraudulent design; or
• has deliberately shut his or her eyes to such a
design; or
Knowingly assisting a breach of
trust
• has abstained in a calculated way from making
such inquiries as an honest and reasonable
person would make, where such inquiries would
have led to discovery of the dishonest and
fraudulent design; or
• has actual knowledge of facts which to a
reasonable person would suggest a dishonest and
fraudulent design.
• Other Australian cases have indicated support for
the test of dishonesty set out in Royal Brunei
Airlines and Twinsectra: Macquarie Bank Ltd v
Sixty Fourth Throne Pty Ltd [1998] 3 VR 133; Voss
v Davidson [2002] QSC 316; Maher v Millennium
Markets Pty Ltd [2004] VSC 174.
• HW – Farah Constructions
Constructive trusts and stolen
property
• It has been said that a thief holds stolen property
on constructive trust for the true owner, even in
the absence of a prior fiduciary relationship:
Black v S Freedman & Co (1910) 12 CLR 105. If
the thief then makes a gift of the property to a
third party that third party will also be held liable
to the trust. However if the third party provides
consideration, the constructive trust will only
become effective when the third pary acquires
knowledge of the theft
Constructive trusts and stolen
property
• In Evans v European Bank Ltd [2004] NSWCA
82, Spigelman CJ thought that such a trust was
better described as resulting trust because of its
automatic nature and institutional characteristics.
A similar approach was adopted in Port of
Brisbane Corp v ANZ Securities Ltd [2003] 2 Qd
R 661, a case involving the theft by an employee
of several million dollars from a company, which
was then invested in a trust account with the
defendant bank. By the time the theft had been
discovered the trust monies had been dispersed
from the trust account
Constructive trusts and stolen
property
• The plaintiff company argued (amongst other things)
that the defendant bank had held the monies on
resulting trust for it and that the dispersement of
those funds was a breach of that trust. In dismissing
this claim, the Court of Appeal accepted the
resulting trust analysis. It was said that these
resulting trusts exist immediately on the transfer of
trust property but that third parties are not subject to
them until they become aware of their positions. It
was also said that this resulting trust was not a
fiduciary relationship. Finally, it was said that the
resulting trust could not exist if the trust property
had disappeared by the time of the judgment.
Constructive trusts and stolen
property
• It is hard to see how the classification of
these trusts as resulting trusts can be
correct. According to the presumptions of
resulting trust, all the thief need do to
destroy the trust is prove that there was no
trust intended by the victim (which will
always be the case). Given these trusts are
imposed regardless of the intentions of the
parties they are better classed as
constructive trusts, albeit of an institutional
kind.
Constructive trusts and
moneys paid by mistake
• Chase Manhattan Bank v Israel-British
Bank (London) Ltd [1981] Ch 105
• Wambo Coal Pty Ltd v Ariff (2007) 63
ACSR 429
• Young v Lalic [2006] NSWSC 18
Constructive trusts and
homicide
• Rasmanis v Jurewitsch (1970) 70 SR (NSW)
407
• Permanent Trustee Co Ltd v Freedom from
Hunger Campaign (1991) 25 NSWLR 140.
• Troja v Troja (1994) 33 NSWLR 269
• Gonzales v Claridades (2003) 58 NSWLR
211.
• Estate of Fitter and the Forfeiture Act 1995
[2005] NSWSC 1188
Constructive trusts to remedy
unconscionable conduct
• In Canada, the principle of unjust enrichment
has been adopted as the fundamental principle
justifying the remedial constructive trust:
Rathwell v Rathwell (1978) 83 DLR (3d) 289. In
Pettkus v Becker (1980) 117 DLR (3d) 257, the
Supreme Court of Canada accepted that, in the
absence of some common intention between
the parties, a constructive trust should be
imposed to remedy unjust enrichment in a
domestic property dispute. Unfortunately, the
decision in Pettkus v Becker gave rise to the
belief that constructive trusts could only be
imposed when there was unjust enrichment
Constructive trusts to remedy
unconscionable conduct
• In Australia, unjust enrichment has not yet
been accepted as a ground for the
imposition of a constructive trust:
Stephenson Nominees Pty Ltd v Official
Receiver (1987) 16 FCR 536; Rush v
Keogh [2000] NSWSC 624. The governing
principle is that equity will impose a
constructive trust to prevent the
unconscionable retention of benefit
Constructive trusts to remedy
unconscionable conduct
• Muschinski v Dodds (1985) 160 CLR 583
• Baumgartner v Baumgartner (1987) 164
CLR 137
Constructive trusts to remedy
unconscionable conduct
• Turner v Dunne [1996] QCA 272 at 4–5 as:
• 1. A constructive trust may be imposed even though
the person held to be trustee had no intention to
create a trust or hold property on trust.
• 2. An intention to create a trust may be imputed
where it is necessary to do so ‘in good faith and in
conscience’.
• 3. A principle which may be applied is that which
restores to a party contributions made to a joint
endeavour which fails, when the contributions have
been made in circumstances in which it was not
intended that the other party should enjoy them.
• 4. Contributions, financial and otherwise, to the
purposes of the jointed relationship are relevant for
this purpose.
Constructive trusts to remedy
unconscionable conduct
• Turner v Dunne [1996] QCA 272 at 4–5 as:
• 1. A constructive trust may be imposed even though
the person held to be trustee had no intention to
create a trust or hold property on trust.
• 2. An intention to create a trust may be imputed
where it is necessary to do so ‘in good faith and in
conscience’.
• 3. A principle which may be applied is that which
restores to a party contributions made to a joint
endeavour which fails, when the contributions have
been made in circumstances in which it was not
intended that the other party should enjoy them.
• 4. Contributions, financial and otherwise, to the
purposes of the jointed relationship are relevant for
this purpose.
Constructive trusts to remedy
unconscionable conduct
• In West v Mead [2003] NSWSC 161, Campbell J
provided a more detailed breakdown of the
requirements of the Muschinski/Baumgartner trust.
Campbell J listed three requirements:
• There must be both a joint relationship or
endeavour, where funds are spend towards a
common benefit;
• The joint relationship or endeavour must have come
to an end ‘without attributable blame’; and
• There must be unconscionability/
unconscientiousness
The effect of legislation on
constructive trusts in the family
context
• Section 79 of the Family Law Act 1975
(Cth)
• Property (Relationships) Act 1982 (NSW)
• In New South Wales the definition of de
facto relationships includes all relationships between two adult persons who
live together as a couple on a genuine
domestic basis
The effect of legislation on
constructive trusts in the family
context
• The ACT, New South Wales and
Tasmania have expanded their legislative
regimes to include claims made by parties
in ‘domestic relationships’ (in ACT and
NSW) and ‘personal relationships’ (in
Tasmania)
The remaining importance of equity
•
•
•
•
Not all relationships
Equity preserved
Deceased parties
Third parties