Constructive trusts

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What are constructive trusts? Carl Ziess Stiftung v Herbert Smith 1969- Edmund Davies- '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.' 

Westdeutsche Landesbank v Islington LBC 1996- Browne Wilkinson- 'a trust which the law imposed on the constructive trustee by reason of his unconscionable conduct.'

Paragon Finance v DB Thakerar 1999- Millett- 'a constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another.' 

Dubai Aluminium v Salaam 2003- Millett- 'equity gives relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally described as a constructive trustee and is said to be liable to account as a constructive trustee. But he is not infact a trustee at all, even though he may be liable to account as though he were. He never claims to assume the position of trustee on behalf of others and he may be liable without ever recieving or handling the trust property. Should say accountable in equity instead.' 

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Examples of constructive trusts

The situations giving rise to a constructive trust are non exhaustive. These are four established examples of when a constructive trust will arise- i) to prevent a criminal from profiting from crime ii) absense of statutory formalities iii) to enforce an agreement between parties to a specifically enforceable contract iv) where a purchaser has agreed to purchase property subject to a third party interest. 

The general theme is that the constructive trust prevents a person from benefitting from wrongful or unconscionable behaviour. Can also be when 1) there has been an unauthorised fiduciary gain or where 2) liability is imposed on strangers to the trust who knowingly receive trust property or dishonestly assist in breach of trust.

i) to prevent criminal profiting from crime- the general view of the law is that no person should benefit from a crime they have committed (the forfeiture rule). As such, where a person murders someone else and then legal title to the deceaseds property passes to them, a constructive trust over the property is imposed to ensure that forfeiture is enforced. The murderer holds the property on constructive trust for the victims estate. 

In the Estate of Crippen 1911 (murder of wife)- Evans- 'it is clear that the law is, that no person can obtain, or enforce, any rights resulting to him from this own crime, neither can his...

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Examples of constructive trusts

representative, claiming under him, obtain or enforce any such rights. The human mind revolts at the very idea that any other doctrine would be possible in our system of jurisprudence.

Dunbar v Plant 1998 (suicide pact)- Mummery- 'The provisions of the Forfeiture Act requires that the judge should look at the case in the round, pay regard to all the material circumstances, including the conduct of the defender and deceased and then ask whether 'the justice of the case requires' a modification of the effect of the forfeiture rule.'

s1-2 Forfeiture Act 1982- only applies to manslaughter, not murder.

ii) absense of statutory formalities- equity will not permit a statute to be used as an instrument of fraud. Where a person attempts to do this, a court will find that the legal title of the property is held on a constructive trust. In such cases the defendant cannot argue that the absense of written evidence means she takes the property absolutely. S53(2) LPA 1925.

Rouchefoucauld v Boustead No 1 1897

Bannister v Bannister 1948- Scott- 'a constructive trust is raised against the person who insists on the absolute character of a conveyance to himself for the purpose of defeating a beneficial....

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Examples of constructive trusts

interest, which according to the true bargain, was to belong to another.' 

iii) to enforce an agreement between parties to a specifically enforceable contract (where property is unique, land, shares, art etc). To prevent a defendant/vendor from resiling from the contract with the claimant/purchaser and still keeping the property. Rather the vendor holds the property on trust for the purchase, who is, in the eyes of equity, the real owner of the property.

Lysaght v Edwards 1876- Jessel- 'the moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold and the beneficial ownership passes to the purchaser.' 

Oughtred v IRC 1960

Neville v Wilson 1997

iv) where a purchaser has agreed to purchase property subject to a 3rd party interest- 

Binion v Evans 1972- Denning- 'whenever the owner sells the land to a purchaser, and at the same time stipulates that he shall take it 'subject to' a contractual licence, I think it is plain 

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Institutional or remedial

that the court of equity will impose on the purchaser a constructive trust in favour of the beneficiary. It would be utterly inequitable that the purchaser should be able to turn out the beneficiary.' Need an express undertaking to respect rights. 

  • Lyus v Prowsa Developments 1982
  • Chaudhary v Yacuz 2011
  • Groveholt v Hughes 2012

Institutional or 'remedial' constructive trust?

There is a distinction between institutional and remedial constructive trusts. In theory, an instituional constructive trust arises simply by the virtue of an already existing property right. It arises the moment the relevant conduct occurs- the court simply declares the trusts existence. By contrast, a remedial constructive trust arises as a remedy for particular conduct. It arises through the exercise of judicial discretion, the court creates the property right through the mechanism of a constructive trust. The remedial constructive trust is not said to exist in the UK, but it does exist in American and Canadian law. Academic and judicial debate queries both whether the remedial constructive trust ought to exist in the UK or whether it already does.' 

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Institutional or remedial

Hussey v Palmer 1972- Mother paid for extension on daughters house. Trust made to give property right. Denning tried to introduce remedial ones into the UK. 'A constructive trust is a trust imposed by law whenever justice and good conscience require it. It is a liberal process, founded on large principles of equity to be applied in cases where the defendant cannot conscientiously keep the property for himself alone, but ought to allow another to have the property 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- Denning- 'Equity is not past the age of childbearing. One of her latest progeny is a constructive trust of a new model.' 

With later judgements remedial trust support declines. May give courts too much discretion at the expense of certainty at law. Judicial discretion to vary property rights is undemocratic and oversteps powers given to the court. 

Re Polly Peck No 2 1998- Nourse- 'there being no earlier decision, we must turn to principle. In doing so, we must recognise that the remedial constructive trust gives the court discretion to vary proprietary rights. You cannot grant a proprietary right to A, who has not had one before hand....

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Institutional or remedial

without taking some proprietary right away from B. No English court has ever had the power to do that except with the authority of Parliament.'

Springette v Defoe 1993- Dillon- '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.' 

Westdeutsche Landesbank v Islington LBC 1996- Browne Wilkinson- 'however, whether English law should follow the US and Canada by adopting the remedial constructive trust will have to be decided in some future case where the point is directly in issue.' 

Thorner v Major 2009- Scott (minority view)- 'I would prefer to keep proprietary estoppel and constructive trust as distinct and separate remedies, to confine proprietary estoppel to cases where the representation, whether express or implied, on which the claimant has acted is unconditional and to address the cases where the representations are of future benefits and subject to qualification on account of unforeseen future events, via the principles of remedial trusts.'

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Institutional or remedial

Sinclair Investments v Versailles Group 2011- Neuberger- 'whether a proprietary interest exists or not is a matter of property law and is not a matter of discretion. It follows that the courts of England and Wales do not recognise a remedial constructive trust as opposed to an institutional constructive trust.'

Common intention constructive trusts- express or inferred intention of parties. Gives effect to agreement between cohabiting couples if they have beneficial interest in the family home. 

Married couples at the end of marriage- use these instead-

  • Matrimonial Causes Act 1973 (divorce)
  • Inheritance (Provision for Family and Dependants) Act 1975 (on death)
  • White v White 2001- 'yard stick of equality'.

Civil partnerships- broad statute based powers- 

  • Civil Partnership Act 

Married couples/civil partners still married and unmarried cohabiting- common law still applies and is not so clear.

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Common intention

Carlton v Goodman- try and decide how the beneficial interest is to be held. 

Stack v Dowden 2007- Lord Hope- 'the situation is complicated by the fact that there is no single set of circumstances. The only feature which these cases have in common is that the problem has not been solved by legislation. Otherwise the circumstances which define relationships between cohabiting couples and their property are infintely various.'

Hale- 'the onus is on the person seeking to show that the beneficial ownership is different from the legal ownership.' 

Women are often left out as thinks like child rearing dont contribute. 

Background- Pettitt v Pettitt 1970, Gissing v Gissing 1971 and Lloyds Bank v Rosset 1991- Bridge- 'the court must rely entirely on the conduct of the parties both as the basis from which to infer common intention to share the property beneficially and as the conduct relied upon to give rise to a constructive trust. In this situation direct contributions to purchase price by the partner who is not the legal owner, whether initally or by payment of the mortgage, will readily justify the inference necessary to the creation of a constructive trust. But as I read the authorities it is extremely doubtful if anything less will do.' 

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Common intention

Law Commission, Sharing Homes: Discussion Paper 2002 (considers the property rights of those who share homes)- 'if the question really is one of the parties 'common intention' we believe that there is much to be said for adopting what has been called a 'holistic approach' to quantification, undertaking a survey of the whole course of dealing between the parties and taking account of all conduct which throws light on the question what shares were intended.'

Oxley v Hiscock 2004- Chadwick- 'it must now be accepted that the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property. In that context this includes arrangements which they may make from time to time such as paying mortgage, council tax, utlities, repairs, and insurance, which have to be met if they are going to live in the property as their home.'

But enter Stack v Dowden 2007- Hope- 'the key to simplifying the law in this area lies in the identification of the correct starting point. Each case will turn on its own facts. But the law can and should provide the right framework.' 

Can determine beneficial interest with express declaration of trust- S53(1)(b) LPA. 

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Common intention

Starting point- sole legal ownership= sole beneficial ownership. Joint legal ownership= joint beneficial ownership. 'Equity follows the law.' These are presumptions.

Hale- 'the onus is on the person seeking to show that the beneficial interest is different from the legal ownership.' 'The search is still for the result which reflects what the parties must, in the light of their conduct, be taken to have intended, and therefore it does not enable the court to abandon that search in favour of the result which the court itself considers fair.'

'This is a very unusual case. There cannot be many married couples who have lived together for as long as this, who have had four children together, and whos affairs have been kept as rigidly separate as this couples have been kept. This is all strongly indicative that they did not intend their shares, even in the property which was put into both their names, to be equal.' (exceptional case so displaced presumed 50/50 split. 

Hale gave a list of factors that should be taken into account- why the home was acquired, nature of the relationship, whether they had children to provide a home for, how the purchased was finance, how they arrange their finances, how they do household expenses. Characters and personality may also play a part. 'This is not an exhaustive list.' Been called a pandoras box. 

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Common intention

Hale- 'there may be also reason to conclude that whatever the parties intentions at the outset, these have now changed. An example might be where one party has financed an extension or substantial improvement to the property, so that what they have now is significantly different from what they had then.' 

IMPORTANT- Stack was a case about quantification of a beneficial interest, not whether there was one. Therefore (at least in principle) the list doesnt apply to establishing the interest in the first place. May now do from Abbott v Abbott. Also doesnt apply in commercial cases.

Neubergers speech (minority)- 'one is concerned with the issue of the ownership of the beneficial interest in property held in the names of two people, who have contributed to its acquisition, retention or value.' 

'While an intention may be inferred as well as express, it may not be imputed. To impute an intention would not only be wrong in principle and a departure from two decisions of your lordships house in this very area, but it would also involve a judge in an exercise which was difficult, subjective and uncertain.' This wasnt followed in later decisions. 

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Common intention

Neuberger (writing extra judicially)- 'if the presumption of equality is to be rebutted because the contributors are significantly different, it is a pretty useless presumption, the only time you need it it isnt there.' He thought that when they hadnt contributed equally, a resulting trust approach should be taken. 

Applying Stack v Dowden- Abbott v Abbott 2007- Hale- 'the law has undoubtedly moved on since Rosset.' 'There are two separate questions- first, was it intended that the parties should share the beneficial interest in a property conveyed to one of them only, and second, if it was so intended, in what proportions was it intended that they share the beneficial interest?'

James v Thomas 2007- Chadwick- 'in the absence of an express post acquisition agreement a court will be slow to infer from conduct alone that parties intended to vary existing beneficial interests established at the time of acquisition.' He thought that only a post acquisition agreement will allow intention to change over time.

Fowler v Barron 2008. 

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Common intention

Jones v Kernott 2011- Walker and Hale- 'at its simplest the principle in Stack is that a 'common intention' trust for the cohabitants home to belong to them jointly in equity as well as on the proprietorship register is the default option in joint names cases. The trust can be classified as a constructive trust, but it is not at odds with the parties legal ownership. What it is at odds with is the presumption of resulting trust.'

'We accept that the search is primarily to ascertain the parties actual shared intentions, whether express or to be inferred from their conduct. However, there are at least two exceptions. The first is where the classic resulting trust presumption applies. Indeed, this would be rare in a domestic context, but might perhaps arise where domestic partners are also business partners. The second is where it is clear that the beneficial interests are to be shared, but it is impossible to divine a common intention as to the proportions in which they are to be shared. In those two situations, the court is driven to impute an intention to the parties which they may never have had.' 

'However while the conceptual difference between inferring and imputing is clear, the difference in practise may not be so great. In this area, the scope for inference is wide. The law recognises that a legitimate inference may not correspond to an individuals subjective state of mind.' 

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Common intention

'in the case such as this, where the parties already share the beneficial interest, and the question is what their interests are and whether they have changed, the court will try to deduce what their actual intentions were at the relevant time. It cannot impose a solution on them which is contrary to what the evidence shows that they actually intended. But if it cannot deduce exactly what shares were intended, it may have no alternative but to ask what their intentions as reasonable and just people would have been had they thought about it at the time. This is a fall back position which some courts may not welcome, but the court has a duty to come to a conclusion on the dispute before it. In this case, there is no need to impute an intentions that the parties beneficial interests would change, because the judge made a finding that the intentions of the party did in fact change.' 

Summary of principles- 1) 'the starting point is that equity follows the law and they are joint tenants both in law and equity.'

  • 2) 'that presumption can be displaced by showing a) that the parties had a different common intention at the time that they acquired the home or b) that they later formed the common intention that their respective shares would change.'
  • 3) 'the relevant intention of each party is the intention which was reasonably understood by...
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Common intention

  • the other party to be manifested by that party's words and conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some other intention which he did not communicate to the other party.'- Diplock in Gissing v Gissing.
  • 4) in those cases where it is clear either a) that the parties did not intend a joint tenancy at the outset or b) had changed their original intention, but it is not possible to ascertain by direct evidence or inference what their actual intention was as to the shares in which they would own the property 'the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property: which should be given a broad meaning, enabling a similar range of factors to be taken into account as may be relevant to ascertaining the party's actual intentions.' 
  • 5) 'Each case will turn on its own facts. Financial contributions are relevant but there are many other factors which may enable the court to decide what shares were intended (as in case 3 or fair in case 4). 

Lord Kerr (disagreeing on imputation)- 'the conscientious quest to discover parties actual intention should cease when it becomes clear that this is simply not deducible from the evidence or that no common intention exists. It would be unfortunate if the concept of inferring were to be strained so as to avoid the less immediately attractive option of imputation.' 

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Common intention

Lord Wilson (disagreeing on imputation)- 'reflective perhaps of the more rigorous approach to the task of inference which I prefer, I regard it as more realistic in the light of the evidence before the judge, to conclude that inference is impossible, but to proceed to impute to the parties the intention that it should be held on a basis which equates to those proportions.' 

Complicated area of law as there is no statute and many people dont plan their affairs.

Questions after Jones v Kernott- 

i) imputing in practise- (in context it looks just like fairness)- Aspden v Elvy 2012- Behrens- 'valuation of Mr A's interest is also difficult. There were no express discussions and the only valuation I have had is that the current value of the house is £400'000. In those circumstances I have to impute an intention by reference to what is fair having regard to the whole course of dealing between the parties. In the end I have decided that the appropriate fair assessment of the interest is 25%. To my mind that represents a fair return on the investment of £65000-70000 and the work carried out by Mr A in a property now worth £400'000. The figure is somewhat arbitrary but is the best I can do with the available material.' 

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Common intention

ii) business context? Laskar v Laskar 2008- Neuberger- 'it is by no means clear to me that the approach laid down by Hale in that case was intended to apply in a case like this. In this case the primary purpose of the purchase of the property was as an investment, not as a home. In other words this was a purchase which, at least primarily, was not 'in the domestic consumer context' but in a commercial context.' 

Geary v Rankine 2012- Lewison- 'it is an impermissible leap to go from a common intention that the parties would run a business together to a conclusion that it was their common intention that the property in which the business was run, and which was bought entirely with money provided by one of them, would belong to the both of them.'

Favor Easy Management v Wu 2012.

iii) relevance of express declaration of trust or other agreements-

Agreement- Gallarotti v Sebastianelli 2012- Arden- 'it was wholly implausible that Mr Sebastianelli should make a substantial gift to Mr Gallarotti. Here were two flat sharers who were not in a family unit. They were people who for convience lived together until they established their own homes.' 

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Common intention

Williamson v Sheikh 2008. 

Declaration: Pankhania v Chandegra 2012- Mummery- 'reliance on Stack v Dowden and Jones v Kernott for inferring or imputing a different trust in this and other similar cases which have recently been before this court is misplaced where there is an express declaration of trust of the beneficial title and no valid legal grounds for going behind it.'

Reform- Should courts be so active? 

Stack v Dowden- Neuberger (dissenting)- 'this is a warning shot against the courts (as opposed to the legislature) refashioning the law. All the more bearing in mind that, as Lord Walker says, the Law Commission may soon make specific proposals for change in this area. In other words, the Law Commission analysis may well justify the legislature changing the law in this field, but it does not support similar intervention by the courts, other than for the purpose of clarification and simplification.' Worried about judicial legislation.

Law Commission, Co-habitation: the Legal Consequences of Relationship Breakdown 2007- 'many people think that cohabitants should have access to exactly the same remedies as married couples and civil partners. We do not agree. Although some cohabitants have relationships...

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Common intention

have relationships that many would regard as being similar to those of spouses, there is a broad range of cohabiting relationships, exhibiting different degrees of commitment and interdependence. And cohabitants have not made the distinctive legal and public commitment that marriage entails.' 

Gow v Grant 2012- Hale- 'the benefits in England and Wales cannot be directly compared with those in Scotland. The existing law relating to cohabitants property rights is quite different in England and Wales and has led to a good deal of litigation. It has twice recently had to be clarified by the highest court in the land. There is some reason to think that a family law remedy such as that proposed by the Law Commission would be less costly and more productive of settlements as well as achieving fairer results than the present law.' 

Parliament did nothing with the Law Commission proposal. 

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