Constructive Trusts - Summary PDF

Preview

Summary

Summary (Krystof Turek lecture)...

Description

CONSTRUCTIVE TRUST SUMMARY Definition: Lord Browne-Wilkinson in Westdeutsche – a constructive trust is a “trust which the law imposed on the trustee by reason of his unconscionable conduct”  Builds on the fact that equity is the jurisdiction of conscience and a constructive trust exists to prevents unconscionable outcomes.  But it is misleading to say a constructive trust will arise because of the unconscionable conduct of the trustee.  This is demonstrated by constructive trusts of the family home – (unmarried couple living together) A better definition may be that ‘a constructive trust arises to prevent the conduct that equity deems as unconscionable’. (1) Anticipatory constructive trusts: Where equity anticipates the completion of the transfer of the gift because equity ‘treats as done what ought to be done’.  This is seen in the ‘Re Rose principle’ where there is a constructive trust until legal title has been transferred to the beneficiary. Here, if every effort rule (where the donor has done everything in his power to make the gift effective) satisfied, the shares are held on a constructive trust by the donor  Also, in the transfer of land – where the transfer operates at law (once it has been registered onto the land register) but until then, it is held on a constructive trust (recognized by Walsh v Lonsdale). (2) Third party recipients of trust property: Where the third-party recipient of trust property is not a bona fide purchaser for value without notice but is just an innocent volunteer. Here the third party holds the property on a constructive trust.  The constructive trust will only arise when the recipient’s conscience is affected (Lord Browne-Wilkinson in Westdeutsche p715)  Lloyd LJ (in Independent Trustee Services v Noble) argues that the constructive trust will arise in receipt of the property. But this does not tell us about the duties of the trustee. Because, the trustee may do something which constitutes a breach of their duty. So, concluding that the recipient is a trustee without all the trustee’s duties.  Lord Browne Wilkinson does not want to impose full trustee duties on somebody who doesn’t know they are a trustee. This is why it is when the claim is bought, and the conscience is affected. Inchoate equity (a better analysis) Suggests that when the third-party recipient receives the property, it is subject to a mere equity, which can crystallise into a full trust the moment the true beneficiary claims it. This is once the recipient’s conscience is affected.  This is where the change of position defence becomes available

CONSTRUCTIVE TRUST SUMMARY (3) Acquiring equitable ownership in property of another based on past dealings: Trusts of the family home:  Breakdown of unmarried relationships - Matrimonial Causes Act 1973, s24 – judge can use any order held of any asset to do justice to the parties – a discretionary power.  During marriage, to resist third party claims – Third party is often the bank (This is also referred to as the common intention constructive trust in Pettitt v Pettitt (1970) and Gissing v Gissing (1971)) Common Intention Constructive Trusts  Two requirements: common intention and detrimental reliance  This is not about fairness but is about giving effect to the parties wishes. Lord Bridge in Lloyds Bank v Rosset [1991] – The test for common intention can be established by having it expressed (only discussions because written evidence is an express trust) or inferred (upfront payment of the property or mortgage payments).  This is arbitrary – people have different living and financial arrangements and this test suggests that one party may get nothing.  Sexism – the man is usually in control of the finances, so woman loses out This test has been modified by Chadwick LJ in Oxley v Hiscock [2004] Here the judge suggests the court must give ‘regard to the whole course of dealings between the parties in relation to the property’. Further developed by Lady Hale in Stack v Dowden This is a departure from the original test set out by Lord Bridge because ‘many more factors than financial contributions may be relevant to divining the parties’ true intentions’ and lists what these may include.  This allows the courts to achieve fairness, but it is unpredictable suggesting that “of court, it will only end in tears” (Dixon, article). Every first instance judge will have their own opinion on how to apply this approach creating numerous appeals.  Courts have a role to make the law predictable, safe and create reliable precedent. But there is a difference between commercial and family law (Radmacher v Granatino) o Lady Hale was the only female family lawyer who dissented arguing that family law cases are different and concern a ‘different type of context’ where predictability & consistency isn’t key, and courts need to use more discretion.  The third type of common intention Jones v Kernott (four years after Stack) – fourth type of common intention Where the courts impute intention because the parties lack common intention as to how the property should be split and the courts impute their intention.  This is structurally impossible because to rely on a constructive trust, you need common intention and detrimental reliance. It is impossible to detrimentally rely on an intention that one never had.

CONSTRUCTIVE TRUST SUMMARY 



Does this go too far? Is it legitimate for a court to effectively impose its view of justice on the parties? In divorce proceedings and civil partnership dissolutions the courts have a lot of discretion to decide what each party receives. But to what extent is this permissible. The terminology is interesting as it is unfair to call this a common intention trust because it is unclear what common intention is in a relationship

Marr v Collie [2017] Privy council decided that it is possible to use a constructive trust approach in relation to business assets.  It is argued that this brings uncertainty to the commercial world (Types of common intention: express (discussion), inferred (payment), Lady Hale (Stack), Impute (Jones). Don’t forget that you still need detrimental reliance.)

Other Constructive Trusts. Pallant v Morgan – Two parties agreed to split land after one refrained from bidding at an auction to keep the price low but, they failed to agree details. Held the party bidding held the land on a constructive trust for both of them AG for Hong Kong v Rein – Bribes were accepted from criminals and used to purchase properties. The employer claimed the properties as the traceable proceeds which was upheld. Privy council held a constructive trust arose to prevent unconscionable outcomes.  Lord Neuberger suggested in Sinclair Versailles that this was unsound but changed his mind in in FHR European Ventures LLP and said that this was right.

Institutional v Remedial Constructive Trusts An English constructive trust is institutional and occurs the moment the facts give rise to one. Traditionally, there is no remedial constructive trust in English law (Polly Peck Intl No2). This is a trust awarded by the court at the discretion of the judges. Family home: an institutional or remedial constructive trust?  Lord Browne-Wilkinson in Westdeutsche – “A remedial constructive trust, as I understand it, is different. It is a judicial remedy giving rise to an enforceable equitable obligation: the extent to which it operates retrospectively to the prejudice of third parties lies in the discretion of the court.”  But, Lord Neuberger in FHR European Ventures LLP confirms that a remedial trust ‘authoritatively is not part of English law’...