LAW 2502 Lecture Notes - Lecture 8: Equitable Remedy, Knowing Receipt, Unconscionability
23 May 2018
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CONSTRUCTIVE TRUSTS
STEP 1: CT shares core elements of a express or resulting trust (subject matter, trustee, beneficiary and personal
obligation attaching to property) however differs in formation, as it is imposed by the court regardless of intention
STEP 2: however, there is debate as to whether a CT is institutional or remedial in nature.
a trust was remedial in its origins, imposed as a personal obligation attaching to property to enliven the equitable
principle that a legal owner should not be permitted to use his common law rights as owner to abuse or subvert the
intention which underlay his acquisition and possession of those rights.
In AU, the HC has generated confusion as to whether the CT is institutional or remedial. described in Muschinksi,as
remedial - but on other occasions, although approving this statement, has stated there are two sorts of CTs. This can be
contrasted to UK where CT is only institutional
Difference between institutional and remedial described in Westdeutsche LG v Islington LBC:
• institutional trust arises immediately by operation of law from the date of the circumstances giving rise to-
court merely declares it has arisen in the past. The consequences that flow from such trust having arisen are
also determined by rules of law, court has no discretion. CT gains automatic priority over 3rd party interests
created during period between creation and recognition by court (unfair to third parties who in the interim
have received the trust property)
• remedial constructive trust = judicial remedy giving rise to an enforceable equitable obligation, the extent to
which it operates retrospectively lies in the discretion of the court- CT gains no priority over 3rd party rights (
prevents prejudice to 3rd parties)
However, upon closer examination, the conceptual difference between a institutional and remedial CT is ephemeral
• Equity acts in accordance with principle. Old maxim that ‘equity regards as done that which ought to be done’
creates and enforces equitable obligations. Thus, although CT is remedial in origin and nature, there does not
need to be a curial declaration or order before equity will recognize the prior existence of a CT
• Where a court retrospectively imposes a CT by way of remedy, it is a remedy and an institution – this dual
characterisation does not deny its continued flexibility as a remedy. Institutional character has never eroded its
remedial origins.
• Therefore, in its modern form, the CT can properly be described as a ‘remedial institution’ which equity
imposes regardless of actual or presumed agreement or intention to preclude the retention or assertion of
beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable
principle giumelli
STEP 3: IT A CT AVAILABLE? – the established categories
• CT arises because some other ‘legally significant circumstances’ are present - imposed ‘regardless of actual or
presumed agreement or intention.’ (Muschinski v Dodds)
• No common unifying thread running through situations where a CT will arise – circumstances are extremely
varied and not closed - described as a ‘rag-bag’ of instances having little in common Austin
• In AU, underlying basis of a CT is unconscionability: Because unconscionability is not a vague notion of
justice and fairness, CT can’t be imposed in the absence of an established category/ analogy with an
established category Muschinski v Dodds
• As an equitable remedy, only available when warranted by established equitable principles/ legitimate
process of legal reasoning by analogy- ie when the case falls within an established category
o Breach of fiduciary duty (establish fiduciary duty exists + breach occurred)
o Unconscionable assertion of ownership of property when another person has contributed to that
property
o Estoppel
o Knowing receipt/ rune in Barnes v Addy: 3rd parties knowingly receive trust property/ knowingly
assist in a breach of trust/ FD
find more resources at oneclass.com
find more resources at oneclass.com
Category
elements
Cases
BREACH OF FIDUCIARY
DUTY
STEP 1: Fiduciary liable for breach if either
1. there was a conflict or possible conflict between his or her duty to
the principal and his or her personal interest or a duty to another
(‘no conflict rule’); or
2. the fiduciary obtained an unauthorised profit by reason of his or her
fiduciary position (‘no profit rule’)
STEP 2: standard remedies are personal in nature- account of profits, or
equitable compensation Warman. A CT is advantageous as it gives the
principal a proprietary claim (right to the property itself)
• Priority over fiduciary’s unsecured creditors if fiduciary becomes
insolvent
• Benefit of any appreciation in value of the asset (if any)
• Ability to ‘trace’ or ‘follow’ the property
STEP 3: As the imposition of constructive trusteeship is the most extensive
form of relief available in equity, the court will not impose a CT unless:
1. to do so is the only satisfactory means of ensuring that the fiduciary
accounts for the entirety of the gain derived from his or her breach
of fiduciary duty; and
2. there is a sufficient connection between the scope of the fiduciary’s
obligation and the property over which it is sought to establish a
constructive trust USSC v Hospital Products
STEP 4: court must determine scope of CT
eg: if F engages in competing business with that of his/her principle
(breaches no conflict AND no profit), court may either declare him/her
• liable to account as CT the particular benefits flowing to him/her
from breach, OR
• hold the person accountable as CT of the entre business and its
profits (innocent party must ‘do equity’ - due allowance for time,
energy, skill and financial contribution that he/she has expended or
made HP v USSC; Timber Engineering
The issue of secret bribes: Lister & Co v Stubbs; AG for HK v Reid;
Sinclair
• ‘easy to see’ how if F takes an asset of the beneficiary, that asset
should be treated as property of B; but a bribe paid to F could not be
an asset which F was under a duty to take care of for the B
o Difference between a F enriching himself by depriving
claimant of an asset and a F enriching himself by doing
wrong to claimant
• However, the Au federal Court in Grimaldi, affirming the UK
decision of Reid, court held that to exclude the bribed fiduciary from
having a CT imposed makes the remedy unavailable in the very
situations where deterrence is likely to be the most needed. Bribery
breeds fiduciary infidelity, privileging the bribed fiduciary creates
an incentive which should not be tolerated.
o This is particularly so in relation to public sector
fiduciaries. In combating the corrupt public official, the
full range of equity’s remedies and techniques (including
tracing and following illicit gains) are important instruments
of deterrence.
• Therefore, the Au position is that where a fiduciary accepts a secret
bribe/ commission a CT may be imposed against the fiduciary
• One difference- Au law stated in Grimaldi departs from UK law in
Reid: Reid has CT arising the moment bribe is received. In Au, CT
is discretionary
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Step 1: ct shares core elements of a express or resulting trust (subject matter, trustee, beneficiary and personal obligation attaching to property) however differs in formation, as it is imposed by the court regardless of intention. In au, the hc has generated confusion as to whether the ct is institutional or remedial. described in muschinksi,as remedial - but on other occasions, although approving this statement, has stated there are two sorts of cts. This can be contrasted to uk where ct is only institutional. Difference between institutional and remedial described in westdeutsche lg v islington lbc: institutional trust arises immediately by operation of law from the date of the circumstances giving rise to- court merely declares it has arisen in the past. The consequences that flow from such trust having arisen are also determined by rules of law, court has no discretion.
