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7 Remedies--Constructive Trusts

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Queensland University of Technology

VII Constructive Trusts Benefits of Equitable remedies • More flexible than CL damages • Allows court to consider all circumstances incl. plaintiff’s conduct, laches, etc. • Can be remedy against individual or property Types of Trust • Express Trusts o Intention o Transfer of property to trustee to hold subject to an equitable obligation for benefit of beneficiary (form of fiduciary relationship) • Implied trusts o Presumed intention. • Resulting Trust o Legal title holder holds in trust for the person who paid the purchase price of the property; doesn’t include mortgage repayments or renovation costs (need constructive trust doctrine) • Constructive trusts o Arises as a matter of law—no intention necessary - (often actually contrary to the intention of the party concerned) o Unconscionability is the focus of equity o Doctrine developed to counter the deficiencies of resulting trusts. Effect • Direction of the court that the defendant holds certain money/property as a constructive trustee for the plaintiff • Duty to convey as directed by the court o Not usually to create an enduring relationship • Used to— o Make trustees accountable for trust property o Make trustees & fiduciaries accountable for profits o Make third parties accountable for assisting in dishonest & fraudulent breach of fiduciary duty • Forms— o Convey specific property ← constructive trust over property o Declaration of personal liability ← account for losses or gains without any particular trust property Classification Substantive Institution • Arises by operation of law • Based on breach of duty (equitable or otherwise) • At the date of the circumstances which give rise to the trust • Not at the date of trial: Parsons v McBain Andrew Trotter LWB240 Principles of Equity Equitable Remedy • Arises by order of the court • Remedial response—For the purpose of acknowledging that others are entitle to the property • Based on Unconscionability (or breach of fiduciary duty), not pre-existing equitable rights: Stephenson Nominees (1987) per Gummow J • At the date of trial • As a remedial response to a claim for equitable intervention Shift towards equitable remedy—resistant to associate with unjust enrichment—but has accepted it is a remedy allowed for a broad range of equitable claims The Cts have said that it is a bit of both – it’s a remedial institution. The purpose of imposing a CT is to give the pl. a remedy and once the trust is declared, the trust has got all the characteristics of an express trust. The CT starts out as a remedy, but once declared becomes an institution. Muschinski v Dodds (Deane J). Remedial Institution • Makes party in breach of equitable principle account for property gained in breach. • ← by making a trustee of property on behalf of innocent party (beneficiary) • → gives beneficiary a proprietary interest • → if constructive trustee is bankrupt, creditors cannot touch the property. • At time of court order only—although court could make effective from another date (earlier) • Not to prejudice rights of third parties—adjustments can be made • Eg—if there is a competing equitable mortgage, the trust might be held to apply only from the date of judgment. Circumstances where Constructive Trust may be ordered (not exhaustive) • breach by fiduciary • advantages through undue influence or unconscionable bargains • unconscionable conduct through estoppel • to determine beneficial ownership of property (see below) Circumstances in which a Constructive Trust may be Ordered Breach of Fiduciary Duty—Accounting for Profits • Where there is an advantage obtained through a breach of fiduciary duty: Hospital Products per Mason J; Chan v Zacharia per Deane J • Account of profits preferable: Warman v Dwyer • Constructive trust only awarded when profit exists in an identifiable form: o Can be difficult where profit involves the establishment of a business → whole of the business may be the measure of the profit: Timber Engineering v Anderson o Where profit/gain has been mixed with fiduciary’s own property → may be able to claim proportionate interest  Onus on the fiduciary to distinguish the property • Constructive trust relief may be modified by liens, indemnities and allowances: Mansard Developments (constructive trust imposed over land—subject to a lien) Andrew Trotter LWB240 Principles of Equity Fiduciaries receiving Bribes—Accounting for Bribes • Previous view—bribe was a debt (fiduciary → plaintiff) o Not a constructive trustee: Metropolitan Bank v Herron (1880) o → could not be specifically recovered o → could no be traced into other property o → claims could be barred through analogy with statute limitations • Now—Bribe held by fiduciary on constructive trust for beneficiary o → can be specifically recovered o → can be traced into other property o → claims cannot be barred through analogy with statute limitations • Where the bribe decreases / increases in value → plaintiff must pay the higher amount— (AG for Hong Kong v Reid [1993]) o Where bribe increases in value, fiduciary must account for the increased value of the bribe o Where br
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