Trusts - Head 9

Constructive Trusts

Mortgage Corporation v Mitchell Robertson 1997 Per Lord Johnston

• i confess an almost instinctive abhorrence of the notion of constructive trusts in the law of Scotland

constructive trusts

Constructive trusts are imposed upon property in the hands of someone so that they own the property not for themselves, but as constructive trustees for someone else.

1. trustee does not consent to office

2. there is not truster

2 situations where constructive trusts will arise

1. fiduciaries taking assets destined for their constituents

2. third parties receving property from a trustee knowing that the trustee is acting in breach of trust and assists in the facilitation of the breach of trust.

fiduciary taking assets constituting constructive trust -

Sutman International Inc v Herbage 1991 GWD 30-1772

• company directors buying land with company funds in breach of trust: the land held by the director on constructive trust for the company.

third party facilitation of breach -

Ted Jacob Engineering Group Inc v RMJM 2014 SC 579

per Lord Drummond Young

“if funds have been transferred in breach of fiduciary duty, it is now established that a recipient who takes the fund in the knowledge that they have been transferred to him on breach of fiduciary duty is not only liable to pay those funds to the person truly entitled to them but is also a constructive trustee of those funds.”

Why are constructive trusts controversial

• insolvency effect

  • trust funds held by a trustee who is insolvent are immune to creditors

  • so arguing that someone holds something on constructive trust for you is essentially arguing that you should have an insolvency preference