Constructive Trusts

CTs arise by operation of law, WITHOUT regard to ________________________

the parties’ intentions

it has sometimes been suggested that a CT is a response to ________________________

D’s unjust enrichment

in the 1970s Denning MR used the CT as a mechanism to _______________________________________

create equitable property rights where justice + good conscience demanded it

Recently, Lord BW recognised that _____________________________________ underpins recognition of CTs. But Virgo argues that this does not nec explain all categories of CT.

unconscionability on D’s part

is the constructive trustee subject to the same obligations as an express trustee?

no

the fact the beneficiary of a CT has an equitable proprietary interest in the trust property means that, if the trustee becomes insolvent, _______________________________________________________________

the beneficiary’s claim to the trust property will rank above the claims of other unsecured creditors of the trustee

what is the orthodox type of CT?

institutional

institutional CTs are treated as _________________________________________

arising by operation of law on the occurrence of a certain event where a CT has previously been recognised

what type of CT can be awarded where a judge considers that it is approp that D should hold property on trust for C?

remedial

which trust has been rejected in England?

remedial CT

how can a CT operate as a remedial mechanism?

where C has an existing equitable interest in property that has been misappropriated and that property has been received by a 3rd party D, C can recover the property from D through a CT

how is a CT as a remedy different from a remedial CT?

a remedial CT involves the creation of an equitable proprietary interest that had not previously existed - where the CT remedy is used, there is already an equitable proprietary interest in existence

what does a CICT arise from?

an agreement or understanding of the parties as to whether they have a beneficial interest in property

in which circumstances will an ICT be recognised?

• unconscionable retention

• rescission of contract

• voluntary transactions made by mistake

• de factor fiduciaries

• breach of undertaking

• breach of fid duty

regarding unconscionable retention, how his unconscionability determined?

with specific regard to D’s fault in receiving + retaining property from C

what 3 problems does Virgo identify relating to the unconscionable retention head of CTs?

1. what has happened to the legal title?

   > in all cases where there is a CT, the trustee must have legal title

   > but where property has been stolen, C’s legal title will not have passed to D until it ceases to be identifiable at law

   > but if the legal title has not passed, how can D(thief) hold the stolen property on CT for the victim?

2. degree of fault

3. timing

   > at what point must D’s conscience be affected?

according to Virgo, what degree of fault is required on D’s part before their conduct in retaining the property is unconscionable?

sufficient if D believes or suspects that the transaction was invalid

> but should NOT be enough that D ought to have known

Lord BW’s interpretation of Chase Manhattan Bank suggests that acquiring knowledge of the mistake ___________ after the receipt of the money is sufficient to characterise D’s conduct as unconscionable

2 days

if C’s property ceases to be identifiable, can a CT be imposed?

no

According to Lord Walker, what are the 3 requirements for a CT to arise regarding voluntary transactions made by mistake?

1. the donor must have been mistaken

   > only incorrect conscious belief and incorrect tacit assumption count (NOT mere causative ignorance)

2. the mistake was sufficiently serious

3. the mistake was sufficiently grave

an ICT will arise where a person who has not been properly appointed as a trustee or other type of fid __________________________________________

intermeddles with trust matters, or does acts that are characteristic of a fid

> such ‘de facto fids’ will be treated as though they have been properly appointed so will be subject to fid duties

according to Virgo, what is the common thread linking CTs?

a response to D’s actual or potential unconscionable conduct

what is the narrow conception of unconscionability?

retention of property: focuses on D’s conscience and involves a subjective test relating to D’s knowledge or suspicion of the circumstances of receipt

what is the broad conception of unconscionability?

equity recognises a CT to ensure that D does not benefit from what is considered to amount to unconscionable conduct

the wider sense of unconscionability has been recognised in the context of _____________________________

mistaken voluntary transfers

unconscionability CANNOT explain the CT that arises when __________________________________________

a contract is made for the sale of land

• also not satisfactory explanation of CICT, because of the emphasis there on the parties’ intentions

Virgo argues that trusts that arise when a contract is made for the slae of land, and CICTs, are better characterised as ____________________

implied or imputed trusts

why is Lord Neuberger against the recognition of a RCT?

1. it would render the law unpredictable

2. it would be an affront to the cl view of property rights and interests

3. it would involve the courts usurping the role of the legislature: creation of new rights should be left to Parliament

why did the court in Re Polly Peck refuse to recognise the RCT?

because of concerns that its use would undermine priorities on insolvency as identified by statute

who denies that the CT is a sub-species of trust at all?

Swadling

key point of Keech v Sandford?

property acquired by a trustee in breach of fid duty is held on CT for the beneficiary

facts of Keech v Sandford?

• D held a lease of a shop on trust for C, an infant

• D failed to negotiate a new lease on behalf of C so negotiated a new lease for himself

• when C was grown, he sued D for the lease and profits obtained from the shop in the intervening years

• held: the trustee should assign the lease to C and account for the profits

facts of AG (Honk Kong) v Reid?

• R was the Acting Director of Public Prosecution for Hong Kong

• he took bribes to stop prosecution of criminals and used the money to buy some land in New Zealand

• C wanted a proprietary remedy to follow the property

• held: a CT is imposed as soon as the bribe is accepted by its recipient

key point of FHR European Ventures LLP v Mankarious?

ANY benefit (including bribes and secret commissions) received by a fiduciary in breach of fid duty would be held on CT for the principal

key point of Lysaght v Edwards?

created the vendor-purchaser CT

facts of Lysaght v Edwards?

• Cs entered into a contract for the purchase of real estate

• after the title had been accepted, and before completion, the vendor died, having by his will given his personal estate to his wife

• he devised all his real estate to his cousin and his friend upon trust for sale

• he devised to his cousin alone all the real estate which at his death might be vested in him as trustee

• held: the real estate contract to be purchased by Cs passed to the cousin under the devise of trust estates

facts of Walsh v Lonsdale?

• D agreed to grant C the lease of a mill for 7 years, the rent to be paid quarterly in arrears

• the parties did not execute a deed for the grant of the tenancy. but C moved in and paid rent quarterly in arrears

• D then demanded a year’s rent in advance

• held: in favour of D

  > equity looks on as done that which ought to be done - the parties were treated as having a lease enforceable in equity from the date of the agreement to grant the lease

facts of Englewood Properties v Patel?

the extent of a trustee’s duty to a purchaser in a VPCT is to maintain the trust property and no more

what does Turner state is the rationale of the VPCT?

to protect the interest that the vendor and purchaser each have in the contract being performed

key point of R D&D Wines International?

rejected the doctrine of RCT

what is Virgo’s opinion on R D&D Wines International?

the decision is confused and creates significant inconsistency in the law

facts of Banner Homes Group plc v Luff Developments?

• C and D were both potential purchasers of a site which they proposed to acquire and develop together through a joint venture

• D had 2nd thoughts about entering into a joint venture w/ C but did not tell C as it feared that C might make a rival bid

• D decided to proceed w/o C

• held: an equity arose where it would be unconscionable to allow one party to treat as its own property that had been acquired in furtherance of a pre-acquisition arrangement or understanding with another party

facts of Generator Developments v Lidle UK GmbH?

• both G and L entered into negotiations to purchase a site together

• it was decided that L would purchase the site in its sole name and the terms of a possible joint venture between parties would be discussed

• draft terms were passed to both parties but no agreement was finalised even by the time L’s purchase was completed

• L informed G that it had decided to advertise the site to the wider market

• held: G was not entitled to an equitable interest in the land

  > absence of reliance by G on any assurance that it would acquire an interest in the land; G reserved the right to back out of the agreements

key point of Chase Manhattan Bank v Israel-British Bank?

where money was paid under a mistake, the transferor retains the equitable interest in the money and the recipient is constituted a trustee

facts of Chase Manhattan Bank v Israel-British Bank?

• C bank, which was incorporated under the law of and carried on business in New York, paid $2m by mistake to a 2nd bank in New York for account of D bank which carried on business in London

• D filed for bankruptcy

• C sought to recover the sum pad by mistake

• held: although legal title in the money that had been mistakenly paid had passed to D, it was still possible for the court to recognise that C had an equitable proprietary interest in the money

key point of Westdeutsche?

payments made with the intention to discharge contractual obligations rebuts a presumed RT even if the contract it was paid under was void

facts of Westdeutsche?

• D entered into interest rate swap agreements with C bank

• the interest rate swap agreement was void

• C argued that the money it paid to D under the contract was held by D for it under RT

• held: the recipient of moneys under a contract subsequently held void for mistake did NOT hold those moneys on RT

what did Lord BW argue in Westdeutsche?

suggested that Goulding LJ in Chase Manhattan was wrong to conclude that C had an equitable proprietary interest in the money from the moment it had been received by D simply because it had been paid by mistake, since there needed to be an identifiable event to create the equitable interest

> the justification for the recognition of C’s equitable proprietary interest was that D’s conscience had been affected by its knowledge of the mistake whilst it was in possession of the money

key point of Binions v Evans?

where the purchaser takes EXPRESSLY ‘subject to’ the rights of the licensee, the purchaser holds the land on an imputed trust for the licensee

• but, even if he does not expressly ’subject' to’ the rights of the licensee, he may do so impliedly

key point of Hussey v Palmer?

Lord Denning MR sought to introduce the RCT into English law

facts of Hussey v Palmer?

• C, an elderly widow, was invited to live with her daughter and son-in-law, D

• a bedroom was built as an extension for C, which C paid for

• later C left due to differences and claimed against D the money as a loan, which failed

• C then claimed the money was held on RT

• held: C was entitled to a share in the beneficial interest