1. Module 4 – Constructive / Resulting Trusts
LAWS12060 Trusts
Module 4 – Constructive / Resulting Trusts

2. INTRODUCTION - Constructive Trusts
Arises by operation of law.
Intention is not a necessary element.
Not necessarily subject to fiduciary responsibilities: Lonhro v Fayed (No 2).
No subject to requirement of certainty of subject matter: Westdeutsche Landesbank Girozentrale v Islington LBC; Giumelli v Giumelli.
Has a remedial function: Muschinski v Dodds.

3. Constructive trusts to enforce agreements concerning property
Incomplete contract for sale of property
Rule in Lysaght v Edwards: when valid contract for sale of property exists vendor becomes constructive trustee for purchaser. Beneficial ownership passes to purchaser. Vendor has right to purchase money, charge or lien w.r.t. money and right to retain possession until paid.
Three qualifications: Interest of purchaser must be protected by equity; obligation to transfer property must be unconditional; transfer must relate to identified property: Re Goldcorp Exchange Ltd (in rec).
Rule applies to both real and personal property: Acorn Computers Ltd v MCS Microcomputer Systems Pty Ltd; Shaw v Foster; Re Wait.

4. Mutual wills
Here parties promise not to revoke their will after one of them dies: Dufour v Pereira; Albrow v Cunningham.
Essential characteristic: agreement by parties not to revoke their wills: Baird v Smee.
If testators breach their promise, equity will impose a constructive trust: Birmingham v Renfrew; Barns v Barns.
Survivor is free to write another will, but beneficiaries will hold property on constructive trust: Fazari v Cosentino.
Survivor can deal with property freely as long as agreement between parties is not destroyed: Birmingham v Renfrew.
Survivor cannot make testamentary gifts during their lifetime: Palmer v Bank of New South Wales.

5. Common intention trusts in Australia
Recognised by Australian courts: Stowe v Stowe; Engwirda v Engwirda.
There must be actual or inferred common intention: Muschinski v Dodds; Sheperd v Doolan.
Evidence of intention: “it’s for you and me”; “our house” etc: Hohol v Hohol; Zaborskis v Zaborskis; Parianos v Melluish (Trustee). Can also be gathered from nature of payments to acquisition of property: Jin Yang.
Constructive trust will arise if a party has acted with detrimental reliance on the basis of that intention: Green v Green; Carruthers v Manning; Brandling v Weir. However, detriment must relate to parties’ common intention: Australian Building and Technical Solutions Pty Ltd v Boumelhem; Cambouya Pty Ltd v Buchanan.

6. Common intention trusts in Australia cont.
Courts will base pf’s quantum of interest on what parties had agreed to: Australian Building and Technical Solutions Pty Ltd v Boumelhem. If there’s no such agreement court will impose a constructive trust which reflects their intentions: Sheperd v Doolan. The Full Court of the Federal Court reviewed the Australian position in Grimaldi v Chameleon Mining NL (ACN ) (No 2) (2012) 200 FCR 296; 287 ALR 22. The Full Court was critical of the practical effect of Lister v Stubbs. While the Full Court accepted that constructive trusts could arise over bribes and secret commissions, it did recognize that the constructive trust was not the only remedy available.

7. Constructive trusts that arise against third parties
In Barnes v Addy, Lord Selbourne stated that third parties (‘strangers’ to trusts) can be made constructive trustees in three ways:
By acting as trustee without authority (trustee de son tort);
Through knowing receipt of trust property (first limb of Barnes v Addy);
Through knowingly assisting in breach of trust (second limb of Barnes v Addy).
Imposition of such trust is remedial in that it compensates for losses occasioned to the trust.

8. Trustees de son tort
Has intermeddled in trust’s affairs without authority and has become trustee through own wrongdoing: Dubai Aluminium Co Ltd v Salaam; Mara v Browne.
But such person must have assumed some degree of control of trust property: Re Barney.
Liability even if acted with honesty: Life Association of Scotland v Siddai.
Constructive trusts can also be imposed where interference comes from other relationships e.g. Some acts as executor without authority: James v Williams; Nolan v Nolan.

9. Knowing receipt of trust property
See detailed discussion of knowing receipt requirements in The Bell Group Ltd (in liq) v Wespac Banking Corporation (No 9) : see Evans p 605. In The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 225 FLR 1, 536, the court rejected the suggestion that the first limb in Barnes v Addy required that the recipients have been dishonest. The finding was repeated by the Court of Appeal of Queensland in Quince v Varga [2008] QCA 376; Armstrong Scalisi Holdings Pty Ltd v Abboud [2012] NSWSC 268; Fodare Pty Ltd v Shearn [2011] NSWSC 479; and Varma v Varma [2010] NSWSC 786.

10. Knowing receipt of trust property cont.
First limb in Barnes v Addy requires property to have been receivIn The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 225 FLR 1, 536, the court rejected the suggestion that the first limb in Barnes v Addy required that the recipient have been dishonest. The finding was repeated by the Court of Appeal of Queensland in Quince v Varga [2008] QCA 376; Armstrong Scalisi Holdings Pty Ltd v Abboud [2012] NSWSC 268; Fodare Pty Ltd v Shearn [2011] NSWSC 479; and Varma v Varma [2010] NSWSC 786. In Grimaldi v Chameleon Mining NL (ACN ) (No 2) (2012) 200 FCR 296; 287 ALR 22 the Full Court of the Federal Court said that the first limb in Barnes v Addy extended ‘to property held or controlled subject to a fiduciary duty’. In Westpac Banking Corporation v The Bell Group (In Liq) (No 3) [2012] WASCA 157, Drummond AJA said that the first limb in Barnes v Addy should be regarded as extending to dispositions of company property made by a director in breach of his fiduciary duties to the company.

11. Knowing receipt of trust property cont.
ed: St Vincent de Paul Society Qld v Ozcare Ltd.
Property can be real or personal or even a mortgage: Super 1000 v Pacific General Securities.
If trust property is absent first limb fails: Farah Constructions Pty Ltd v Say-Dee Pty Ltd.
Person has ‘receipt’ if they have possession of trust property for their ‘own use and benefit’: Stephens Travel Service International Pty Ltd v Qantas Airways Ltd; Spangaro v Corporate Investment Australia Funds Management Ltd.
Five categories of knowledge in a recipient are relevant to decision to impose a constructive trust: see Baden in Evans p 607. Three categories are ‘actual knowledge’ and the other two ‘constructive knowledge’.
In Australia knowing receipt can be established in cases (i) to (iv) of the Baden categories but whether category (v) negligent failure to inquire should be included is not decisive as such: Spangaro v Corporate Investment Australia Funds Management Ltd; Consul Development Pty Ltd v DPC Estates Pty Ltd.

12. Knowingly assisting a breach of trust
Three elements
D must know that dishonest/fraudulent design is being implemented;
D must know their acts have the effect of assisting the design;
Knowledge of the assistant/accessory must be of actual facts and not knowledge of mere claims or allegations.
There is support in Australia for test of dishonesty enunciated in Royal Brunei Airlines and Twinsectra: Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd; Voss v Davidson; see also Gertsch v Atsas.
In Equiticorp Finance Ltd v Bank of New Zealand the orthodox approach has been to use the Baden categories.

13. Knowingly assisting a breach of trust cont.
High Court has discounted the differences between the traditional approach (as set out in Consul Developments) and that adopted in Royal Brunei as ‘not soundly based’: Farah Constructions Pty Ltd v Say-Dee Pty Ltd. It has been recognised that the second limb in Barnes v Addy also attaches to assistance given to non-trustee fiduciaries such as company directors: Wespac Banking Corporation v The Bell Group (In Liq) (N0 3) [2012] WASCA 157; Grimaldi v Chameleon Mining NL (CAN ) (No 2) (2012) 200 FCR 296; 287 ALR 22. In City of Sydney v Streetscape Projects (Australia) Pty Ltd [2011] NSWSC 1214 Einstein J stated that the doctrine of knowing assistance could be applied to breaches of confidence bearing features of a fiduciary relationship.

14. Remedying unconscionable conduct
Muschinski v Dodds: High Court ordered a constructive trust to protect beneficial interest of someone who provided the entirety of the purchase price of some land.
Deane J: where a joint relationship/endeavour fails, equity will not permit one party to assert or retain the benefit of property as it would be unconscionable for that party to do so.
Test of unconscionability is a legal one.
High Court rejected unjust enrichment as a ground for imposition of a constructive trust in Australia.
Deane’s approach was accepted by the High Court in Baumgartner v Baungartner.

15. Practical equality
Baumgartner v Baumgartner: “equity will normally favour equality especially ‘in circumstances where the parties have lived together for years and have pooled their resources and their efforts to create a joint home...they should share the beneficial ownership equally as tenants in common.’”
Court will not conduct complicated factual inquiries which will result in relatively insignificant differences in contributions and consequential beneficial interest.
High Court noted that in many cases it might be necessary to account for non-financial contributions.

16. Elements of unconscionability constructive trust
According to Turner v Dunne, the combined effect of Muschinski and Baumgartner is:
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.
An intention to create a trust may be imputed where it is essential to do so ‘in good faith and in conscience’.
A principle which may be applied is that which restores to a party contributions made to a joint endeavour which fails, when the contribution has been made in circumstances in which it was not intended that the other party should enjoy them.
Contributions, financial or otherwise, to the purposes of the joint relationship are relevant for this purpose.
Both the Muschinski and Baumgartner judgments refer to the ‘general equitable principle’ that restores contributions to a party to a joint endeavour which later fails.
See also West v Mead for a breakdown of these elements – Evans p 623.

17. Joint relationship or endeavour
Agreements expressed in writing or orally may be relevant in assessing where a relationship of joint endeavour exists: Waterhouse v Power.
Such agreements may assist court in assessing the unconscionability of any denial of interest: Meehan v Fuller.
Binding agreements will normally be enforceable: West v Mead.
Absence of express agreement is not fatal to a claim for a constructive trust: Brown v Manuel.
Mere fact that parties are sharing living arrangements does not imply existence of a joint endeavour: Barker v Linklater.
The fact that one party is paying towards the beneficial acquisition of property will not give rise to a joint endeavour: Downham v McCallum; Draper v Official Trustee in Bankruptcy.

18. Termination without attributable blame
Test of ‘attributable blame’ does not require the court to establish which one of the parties to the relationship was at the greater fault for its demise: Henderson v Miles (No 2); see also Australian Building and Technical Solutions Pty Ltd v Boumelhem.
Relationships ending without attributable blame
Kriezis v Kriezis: relationship between mother and daughter had irretrievably broken down;
Cetojevic v Cetojevic: joint endeavour was terminated due to death of plaintiff’s son by drowning;
Australian Building and Technical Solutions Pty Ltd v Boumelhelm: here the son was declared bankrupt.

19. Unconscionability
Final requirement for imposition of constructive trust is that one party must unconscientiously retain the benefit of contributions and deny the interests of the other party: Sivritas v Sivritas.
If financial contributions have been made, it is easier to prove unconscionability when interests are denied. Evidence of pooling financial resources will support such claims: Hibberson v George.
Provision of labour in renovations will support a claim: Miller v Sutherland, just as care and support given to the deceased: Saliba v Tarmo. See also Swettenham v Wild.
Non-financial contributions might prove to be difficult in the assessment of unconscionability – see Bryson v Bryant for a discussion of equity’s inability to fully recognise non-financial contributions made by homemakers – Evans p 627.

20. RESULTING TRUSTS
Equity sometimes presumes a trust was intended and will impose one on the parties to a transaction.
Two types of resulting trusts according to Westdeutche Landesbank Girozentrale v Islington Borough Council:
Automatic resulting trust - these arise due to failure of an express trust or where there is surplus of trust property after termination of trust. Remaining trust property is held on resulting trust for the creator of that trust.

21. RESULTING TRUSTS cont.
Presumed resulting trust – these arise because contributions have been made to the purchase of property but contributor has not received a legal title for their contribution. Equity presumes that the equivalent legal title is held on trust for the contributor. It also arises where property has been voluntarily transferred to a person who has not provided any consideration (i.e. a volunteer). In Jones v Kernott [2012] 1 AC 776; [2012] 1 All ER 1265, the Supreme Court of the United Kingdom stated that the presumption of resulting trust no longer had any role in cases of family homes held in joint names for married or unmarried couples. The Supreme Court affirmed that the intention of the parties may be imputed in cases where it is not possible to discern an actual or implied intention.

22. Resulting trusts that arise in property transfers
Where purchaser buys property and voluntarily transfers it into the name of another person, equity presumes that the owner holds property on resulting trust for purchaser: Napier v Public Trustee (WA); Turnbull v Gorgievski.
Equity presumes owner holds the title on trust for the one who provided the purchase price: Tesoriero v Tesoriero.
Presumption applies to both real and personal property: Russell v Scott.

23. Contributions to the purchase price of property
Where purchase money is provided by two or more parties jointly, and property is put into the name of one of the parties, equity will presume a resulting trust in favour of the other parties: Calverley v Green.
Buffrey v Buffrey: the presumption of resulting trust which arises when joint tenants have made unequal contributions to the purchase price may be rebutted by evidence to the contrary – i.e. the common intention of the parties was for equality of interests despite inequality of contributions.
Several types of contribution such as direct payment of money are recognised as a contribution: Field v Loh.
Mortgage liability also counts as contribution: Brennan v Duncan; Bloch v Bloch; Dinsdale v Arthur; Buffrey v Buffrey.
Costs of acquisition include legal fees, stamp duty and incidental costs: Currie v Hamilton; Ryan v Dries; Damberg v Damberg.
No resulting trust will arise where there has been an upgrade of property or its maintenance: Pettitt v Pettitt - unless there was a common intention/agreement between parties that is enforceable or gives rise to an estoppel: Patrick Jones Photographic Studios Pty Ltd v Catt; Sivritas v Sivritas.
Where parties make equal contributions, equity presumes that the interests are held as joint tenants (and not as tenants in common) such that there is a right of survivorship if one of them dies, their interest will be divided equally among surviving tenants.

24. Presumption of advancement
In some cases equity refuses to impose a resulting trust. Instead it presumes any purchase/contribution was intended to be a gift by way of advancement.
If there is no actual intention to confer a beneficial interest on the legal title holder, the presumption of advancement will not be effective and so the normal presumption of resulting trust will apply: Calverley v Green.
There is presumption of advancement when husband either provides the purchase price or makes contributions towards purchase price of property in which the wife is given a legal interest: Kais v Turvey. This does not apply where wife transfers to husband: March v March; Trustees of the Property of Cummins (a bankrupt) v Cummins – it has been assumed that a husband had a natural duty to provide for wife and children.
Presumption also applies between man and fiancee: Wirth v Wirth; Bertel v Feher. Such transfers are considered as gifts in contemplation of marriage.

25. Joint purchase of matrimonial home
In Cummins the High Court held that where a husband and wife purchase a matrimonial property it will generally be inferred that the property will be divided equally between them irrespective of their original contributions. In Jones v Kernott [2012] 1 AC 776; [2012] 1 All ER 1265, the Supreme Court of the United Kingdom stated that in the context of the purchase of a family home or flat, in joint names for occupation, where both parties are responsible for any mortgage, there is no presumption of a resulting trust arising from their having contributed to the deposit in unequal shares. The presumption is that both parties intended a joint tenancy both in law and in equity. That presumption can be rebutted by evidence of a contrary intention, which may more readily be shown where the parties did not share their financial resources.
If property has been registered in joint names, equity will not interfere with that joint tenancy by creating disproportionate shares reflecting their contributions.

26. Joint purchase of matrimonial home cont.
The Cummins decision was reviewed by the Full Federal Court in Sui Mei Huen v Official Receiver for Official Trustee in Bankruptcy. It found that the Cummins presumption of joint tenancy was not irrebuttable. It could be displaced by an express or constructive agreement between husband and wife concerning their interests.
In Sui Mei Huen the agreement between the parties had created a constructive trust of the man’s legal half-interest in the property in favour of the wife, which was conditional on the wife’s obligation to pay the mortgage and to forbear from suing for maintenance.
Presumption of advancement does not apply in de facto relationships: Napier v Public Trustee (WA); Calverley v Green.

27. Transfers
Presumption of advancement exists when purchase money is provided by a parent and legal title is taken by the child: Calverley v Green.
Child does not need to prove need for financial support in such cases: Callaghan v Callaghan.
Applies to illegitimate/adopted children and other forms of familial relationship, but one party must act as parent for the other: National Executors & Agency Co of Australasia Ltd v Fenn.
Presumption exists between a mother and her children: Wong v Wong; Brown v Brown; Nelson v Nelson.
Presumption applies to adult children: Brown v Brown; Sellers v Siemianowski; Sleboda v Sleboda; but it gets weaker as child becomes more independent: Lasker v Lasker.
Presumption can be rebutted with evidence of intention: Rix v Mahony; Macquarie Bank Limited v Lin; Australian Building and Technical Solutions Pty Ltd v Boumelhem; Damberg v Damberg.