constructive trust

CONSTRUCTIVE TRUSTSEquity, Trust & Probate

INTRODUCTION• Arises by the operation of law & not by intention

of parties, express/ implied.• Characteristics ;

• Arises by operation of law & not intention of parties

• Not depend on express intention & presumed intention of the settlor.• Eg; a gift from husband to wife can’t be

revoked by Constructive Trust.• Depends on the conduct of the parties.

• A trustee transfers money to B. B knew about it as as trusted money. Thus B automatically be a trustee to A under the constructive trust.

CIRCUMSTANCES GIVING RISE TO CONSTRUCTIVE TRUST• Be categorised in traditional & modern categories.• TRADITIONAL CATEGORY.

1. Can’t get unauthorised profits from the trust.• Keech v Sandford - Property becomes a trust property whenever the trustee

obtains it by the knowledge acquired in position as trustee. • The trustee took a lease form himself after lessor refused to renew lease for the

trust as the beneficiary is an infant. Trustee held to be a constructive trustee & such action was accountable to the trust in respect of profit gained.

• Boardman v Phipps - Mr. B was a solicitor to the trust. He views that the trust was ineffectively managed due to the trustees minority shareholdings. Realised that there was no money to buy extra shares, He & one of the beneficiaries bought necessary shares & reorganized the company. It was done in good faith. Held- B is a fiduciary as a solicitor to the trust, he was a constructive trustee of the profit made on the personal shareholdings.

• AG of Hong Kong v Reid - Reid is a senior civil servant to the HK govt. He received bribes in the course of his employment & bought a land property in NZ.It was held that any property acquired by using the money was said to be a trust property.• There’s constructive trust. thus can go for both personam & property claim.

• Libster v Shibs - Court held that Libster does not hv any property claim to the bribe. A person taking bribe is not liable as CTrustee on the ground the liability being personal.

CIRCUMSTANCES GIVING RISE TO CONSTRUCTIVE TRUST

• 2. Using Statute as Instrument of Fraud• Bannister v Bannister - D sold and conveyed 2

adjoining cottages to P on the basis that she could continue occupy it on a free basis as long as she liked. When he sought to evict her on basis that she has no right of occupation, she successfully counter-claimed for declaration that P held the cottage on trust for her lifetime. The court held that the D is considered as constructive trustee and that he can’t use statute as instrument of fraud.

• 3. Mutual Will• Where 2 persons agreed to make will for the benefit of

the same person.• If one of party revoked the will after the death of anor

party, thus the person executing the deed will hold property as trust property.

CIRCUMSTANCES GIVING RISE TO CONSTRUCTIVE TRUST INTRODUCTION

• 4.Vendor of land• When two parties agreed to sale the land, Equity will look at the vendor

as a CT holding the property for the purchaser who is regarded as the owner.

• Shaw v Foster - ‘The vendor was a trustee of property to the purchaser, the purchaser be regarded as the real beneficiary of the Trusted property.’

• Wong Siew Choong S.B v Anvest Coorperation S.B - In exchange of contracts/ completion, the vendor holds the property as Constructive Trustee.

• 5.Unlawful Conduct (Acquisition property by killing)• If a person benefits from an unlawful conduct, the constructive trust will

be imposed on him.• Re Crippen - D inherited the assets of his wife after murdered her. A CT

will be imposed for the benefit of those next entitled under the wife’s will.• Re Siqsword - A son caused the mother’s spine to fractured which cause

her death. Assuming he caused the death of his mother, he wont be able to inherit all the will given to him.

• Re K - The wife murdered her husband as her ownership of the joint matrimonial home had been deprived. she held a half share for herself and the other was given to the husband’s next of kin.


• 5. Strangers • Stranger who not appointed & who infringes the trust by takin it upon himself may be regarded as CT.• 3 circumstances;

• Trustee de son tort (Trustee of his own wrongdoing)• Liable if they intermediate with the trust funds.• Mara v Brown - State mind of the Stranger is irrelevant

• Knowing assistance/ dishonest assistance/ accessory liability. • Stranger who helps in the assistance of the trustee for committing fraud/dishonesty may be liable as CT.• It is necessary to show that the stranger has knowledge of the existence of the trust.

• Barnes v Addey - Held that stranger must knowingly participated in the principle wrongdoer’s fraudulent breach of trust.

• Royal Brunei Airlines S.B v Tan - No need any longer to show that breach caused by fraud. D will still be liable personally as a CTrustee since he had dishonest caused/ permitted the company to commit BOT, knowing that company was not authorised to such activity.

• Tan was a principal shareholder & managing director of a travel company. BLT was an agent to Brunei Airlines & was required to pay the money received in a separate acc. This was not done fro this money was transferred to BLT normal acc, was used for BLT business purposes. The result BLT falling into arrears in respect of its arrangement with the airline. Held; D is liable personally as CTrustee since he had dishonestly caused/permitted the company to commit BOT, knowing that the company was not authorised to do so.

• Baden Delvaux - Listed out 5 types of knowledge, concluded that the 1st three types of knowledge may be described as actual knowledge (Actual knowledge; Wilfully shuts one eyes to the obvious; wilfully & recklessly failing to make inquiries as an honest & reasonable person would make) & the last two is constructive knowledge (knowledge of circumstances which indicate the facts to an honest & reasonable person & knowledge of circumstances which would put an honest & reasonable person on inquiry.)

• Claimant needs to show 3 things;• D has requisite knowledge• Given the knowledge, D had acted in a way that is contrary to the normal acceptable standards of

honest conduct• D must in some sense be dishonest himself.


• Knowing receipt & dealing/recipient liability• Liability imposed on stranger that receive trust property knowing that his possession is in

breach of trust/ where he receives t.p without knowledge of any breach of trust but subsequently he becomes aware of the trust but nevertheless acts in a manner inconsistent with it.

• A personal claim, which do not depend on the proof that D still has the property in possession. However, degree of knowledge required plays a role before the liability is imposed.• Re Montagu’s Settlement held that the 1st three degree stated in Baden Delvaux is

relevant to impose liability under this concept. A stranger will not be taken to hv knowledge of fact he once knew but had genuinely forgotten- thus actual knowledge is required.

• Agip (Africa) Ltd v Jackson - ‘Knowing receipt’ can’t arise if the party acts as an agent and construe the trust property according to the principal’s instruction. Held that the party will not be liable until they know abt the breach of trust.

• El Ajou v Dollar Land Holdings etc - The dishonesty/want of probity involving actual knowledge is not precondition of liability. Not to be held liable unless he went for further inquiries in circumstances which an honest & reasonable man would realised that the money is a trust money.

• Need to prove that money/ trust property received. Knowledge is not important. Trust property should not be kept/ else amount to unjust enrichment.

• Belmont Finance Corporation v Williams Furniture Ltd (No.2) - The co’s direstors who participated in unlawful share purchase scheme were liable bcs they knew/ ought to hv known all the facts which established the improper use of the funds. Immaterial that the directors did not act fraudulently.

CIRCUMSTANCES GIVING RISE TO CONSTRUCTIVE TRUST• MODERN CATEGORIES

• Family Arrangements• Normally on cases where husband deserted wife.

• Eves v Eves - Involves an unmarried couple. Where the house was under the name of the husband solely. At the time of purchase he told the woman that if she is 21y/o he would have put her name under the house, bcs it was to be their joint home. He admitted an excuse for not putting her name under the joint names. Court inferred that there was understanding between them/common intention that the woman would have some proprietary interest in it. • There is common intention even the name was under the bf’s name thus, it is held to be

actually a joint-home.• Lim Kim Chiu v Chan Poh Yuk - the married couple, P&D, were now separated. Land

was bought solely under the name of D. Court allowed the claim brought by P and held that since there was common intention thus the properties were held to be divided equally.

• Woo Swee Har v Bin Kim & Ors - P & d bought a land, and both had contributed to the purchase price.They built a house on the land, however it was conveyed to 3rd party. P claimed (wife) that property was trust property & the 1st D as the trustee of the property. Claimed the conveyance of land was null&void as at the time the D was unsound mind. te court allowed the claim as the beneficial interest was 80.15%.

• Lloyds Bank v Rosset - The court had rejected the New Model Constructive Trust as there is no discretion to impose the C.T simply to achieve fair result. There must be either direct financial contribution from the person/both parties share a common intention to share the property & aggrieved party has acted to her detriment in reliance upon it.


• License. • Who is licensee? A person who is physically present on land whether in

occupation/not but without any proprietary interest in land. • The doctrine of estoppel may give a licensee the proprietary interest in land as a

consideration for licensee who has been encouraged to act in his/her detriment.• Issue: Whether the contractual licensee has a proprietary interest? If yes he will

be protected against 3rd Party.• Binions v Evans - Employer agreed to allow an employee’s widow to stay at the

cottage rent free for life. The cottage was sold at reduced price, expressly subjected to her interest. The court had regarded her interest as a license, binding on the purchaser under a c.t.

• Applied in D.H.N Foods Ltd v Tower Hamlets London - CT had enabled a contractual licensee to e treated as having a sufficient interest to qualify for compensation on compulsory purchase of land.

• Registered Land• Williams & Glyn’s Bank Ltd v Boland - The concept of notice has no

relevancy in dealings with registered land. The land registration system has mentioned that the notice has no part to play. However, some argues that it is still applicable if only the party wanted to use statute as an instrument of fraud.

• You will be the true owner if registered under your name ( Indefeasibility of title )

WHETHER CT IS INSTITUTIONAL/ REMEDIAL IN NATURE• Remedial CT establishes on the discretion of the

judge rather than the application of rule. • The equitable obligations that operates to the

prejudice of third parties lies under the discretion of the judges - Westdeutsche Landesbank Girozentral v Islington IBC

• In other words Institutional CT arising through settled law from the date of circumstances which gives rise to it.

• Court’s funct to declare such trust arises in the past.• Remedial CT - Judicial remedy giving rise to an

enforceable equitable obligations; the extend to which operates retrospectively to the prejudice of 3rd P lies in the discretion of the court. AG of HK v Reid - Still can go for proprietary claim.

The end

constructive trust

Law