@marcuscleaver uklawweekly.com Constructive Trusts @marcuscleaver uklawweekly.com

Constructive trusts

Definition Constructive trusts arise “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” Millett LJ in Paragon Finance v DB Thakerar & Co [1998]

Definition Constructive trusts require only a fiduciary relationship This therefore includes trustees but also solicitors and company directors etc.

Definition Unless permitted, a fiduciary may not: make a profit have a conflict of interest Lord Herschell in Bray v Ford [1896] These two points are often closely intertwined so examine the context of each case Boardman v Phipps [1967] Queensland Mines Ltd v Hudson [1978]

Definition

Profits/bribes The exact status of unauthorised profits or bribes has been subject to much debate over the years Lister & Co v Stubbs [1890] Attorney General for Hong Kong v Reid [1994] Sinclair Investments Ltd v Versailles Trade Finance Ltd [2011] In the recent case of FHR European Ventures LLP v Cedar Capital Partners LLC [2014] it was decided that these are held on constructive trust for the principal

Statute as an instrument of fraud Where the technical requirements of statute would allow a defendant to perpetrate fraud, constructive trusts can be used to avoid this outcome Rochefoucauld v Boustead [1897] However this cannot be used to interfere with the legal rights of an individual Midland Bank Trust Co Ltd v Green [1981]

Statute as an instrument of fraud Constructive trust

Property Once the contract is signed the seller holds property on constructive trust for the buyer until completion Chinn v Collins [1981] Joint ventures may also give rise to a constructive trust Pallant v Morgan [1952]

Property Where the owner of property seeks to transfer it and “does everything necessary” in this regard but the transfer fails then the property can be held on constructive trust for the transferee Re Rose [1952]

Common intention constructive trusts

Common intention constructive trusts Lloyds Bank v Rosset [1991] An agreement prior to the purchase A demonstrable common intention It is up to the court to work out the common intention based on the entire course of conduct of the parties Lady Hale in Stack v Dowden [2007]

Constructive trustees If a non-trustee interferes with trust property or the workings of the trust they can be considered a constructive trustee This is also called ‘trustee de son tort’ (trustee of his wrong) Mara v Browne [1895]