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Constructive Trusts
@marcuscleaver uklawweekly.com

2. Constructive trusts

3. 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]

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

5. 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]

6. Definition

7. 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

8. 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]

9. Statute as an instrument of fraud
Constructive trust

10. 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]

11. 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]

12. Common intention constructive trusts

13. 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]

14. 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]