Constructive Trusts

definition of a constructive trust

Biehler: 'in general terms, it can be described as a trust which is imposed by equity in order to satisfy the demands of justice and good conscience and to prevent a person deriving a profit from fraudulent conduct or taking unfair advantage of a fiduciary position' (quoting Lord Denning in Hussey v Palmer [1972])

Edward Sykes (1941)

'a vague dust heap for the reception of relationships which are difficult to classify or which are unwanted by other branches of the law'

Institutional constructive trust

• Arises automatically in specific situations due to facts like a breach of fiduciary duty.

• The court simply recognises that the trust already exists.

Remedial constructive trust

• created by the court as a remedy when fairness demands it.

• Unlike an institutional trust, which exists from the outset, a remedial trust takes effect from the date of the court order or other specified times.

Westdeutsche Landesbank-Girozentrale v Islington Borough Council [1996]

• The distinctions between the institutional and remedial constructive trusts were set out by Lord Browne Wilkinson:

• 'Under an institutional constructive trust, the trust arises by operation of law as from the date of the circumstances which give rise to it: the function of the court is merely to declare that such trust has arisen in the past' and he added that the consequences that flow from such a trust having arisen are determined by rules of law, not as a result of discretion. In contrast, he said that his understanding of a remedial constructive trust was that 'it is a judicial remedy giving rise to an enforceable equitable obligation' and that the extent to which it operates retrospectively to the prejudice of third parties lies in the discretion of the court.

Muschinski v Dodds [1985]

Deane J commented that 'for the student of equity there can be no true dichotomy between the two notions' of 'institution' and 'remedy', the question of where the lines of demarcation between them should be drawn has provoked considerable academic comment over the years.

Fiduciary

• Millet LJ in Bristol and West Building Society v Mothew [1998]

• A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.

Irish Life and Permanent plc v Financial Services Ombudsman [2012]

'While the categories of fiduciaries are never closed, there is, I think a reluctance to extend their boundaries beyond the traditional categories because to do so would effectively impose super-added duties of utmost good faith and complete disclose to persons who never contracted to do so and thus potentially frustrate the ordinary workings of the commercial world.'

Irreducible core of the fiduciary obligation as per Weinrib [1975]

• no conflict and

• no profit rules

Kelly v Kelly [1874]

Chatterton VC stated that;

• 'it is the great principle that no person in a fiduciary position accepting any benefit attributable in any degree to that fiduciary position can be allowed to enjoy such benefit for himself'.

Aberdeen Railway Co v Blaikie Brothers [1854]

• Lord Cranworth LC stated

  • 'it is a rule of universal application, that no one having [fiduciary] duties to discharge, shall be allowed to enter into engagements in which he was, or can have, a personal interest conflicting, or which may possibly conflict, with the interests of those whom he is bound to protect'.

Objective or Subjective test for no-conflict, no-profit rules?

Boardman v Phipps [1967]

• in the view of Lord Upjohn this meant that:

  • 'the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.'

Boardman v. Phipps [1967]

• Solicitor acting for a trust used inside knowledge to buy shares for personal profit.

• Though he acted in good faith, the court still imposed a constructive trust

• The reasonable man would see there was a possible conflict

Chan v Zacharia [1984]

liability to account

Fundamental case for principle of no personal profit

Gabbett v Lawder [1883]

Fully informed consent

Boardman v Phipps [1967]

strict application case?

• Murad v Al-Saraj [2005]:

  • Arden LJ, 'to provide an incentive to fiduciaries to resist the temptation to misconduct themselves, the law imposes exacting standards on fiduciaries and an extensive liability to account'.

Keech v Sandford [1726]

• A trustee held a lease of Romford market profits on trust for an infant.

• He attempted to renew the lease for the infant, but the lessor refused since the infant couldn't meet the required covenants.

• The lessor offered the lease to the trustee personally, which he accepted in his own name.

• The court ruled that the trustee still held the lease for the infant's benefit.

• He was required to transfer the profits to the infant.

• King LC stated; 'this may seem hard, that the trustee is the only person of all mankind who might not have the lease; but it is very proper that the rule should be strictly pursued'.

Moore v McGlynn [1894]

lenient approach of Chatterton VC - highly criticised.

Re Thompson [1930]

where an injunction was granted restraining a trustee from carrying on a yacht brokerage business in the same town as that in which a similar business had been managed by him and his co-trustee on behalf of the trust. Clauson J said having regard to the special nature of the business which he was pursuing, the defendant trustee would have been entering into engagements which would or might conflict with the interests of the beneficiaries as he would be obtaining commission for himself which might otherwise have been obtained on the beneficiaries' behalf.

Boardman v Phipps [1967]

• solicitor and a beneficiary aimed to improve a trust's investment by acquiring shares in a company.

• They acted with the consent of two trustees and ultimately benefited the trust.

• However, they used information obtained in a fiduciary capacity while representing the trust.

• The HoL ruled they had to hand over their profits, as consent was not fully informed.

• The decision has been criticised as overly strict since the beneficiaries suffered no loss and actually gained.

• Critics argue that fiduciary accountability for profits should be applied flexibly, considering all circumstances rather than rigidly.

Regal (Hastings) v Gulliver [1967]

• A company planned to acquire two more cinemas, to sell three as a going concern.

• A subsidiary was formed to lease the new cinemas, but it needed sufficient capital.

• The directors personally bought shares in the subsidiary to meet this requirement.

• They later sold their shares for a profit, benefiting both themselves and the company.

• The company sued, claiming the profits rightfully belonged to it.

• The CA ruled in favour of the directors, but the HoL reversed the decision.

• It was held that directors who profit from opportunities or knowledge gained in their role must account for those profits, even if they acted in good faith and the company benefited.

Bribes/secret commissions

• As a general principle, a fiduciary may not accept secret commissions or bribes arising out of a transaction in which he is acting on behalf of a principal without the knowledge and consent of his principal.

Old case for bribes/secret commissions

Lister & Co v Stubbs [1890]

Lister & Co v Stubbs [1890]

• the defendant was bribed to place certain orders with certain suppliers. The plaintiff (i.e. claimant) wanted to establish a proprietary claim to the profitable investments the defendant made on the bribes by arguing there is a constructive trust

• The Court of Appeal held that to allow this would offend property rules and therefore could not claim title to the property acquired by the bribes

• NB: old rule

Attorney General of Hong Kong v. Reid [1994]

• Defendant 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.

• The claimant wanted a proprietary remedy to follow the property

• The Privy Council overruled Lister v Stubbs and held that a proprietary constructive trust is imposed as soon as the bribe is accepted by its recipient – this means the employer is entitled in equity to any profit generated from the bribe received

FHR European Ventures LLP v Cedar Capital Partners LLC [2015]

• FHR purchased shares from Monte Carlo Hotel for €211.5m.

• Cedar acted as a FHR’s agent (so there was a fiduciary relationship) in negotiating the purchase.

• Cedar had also agreed with the vendor they would get a €10m fee following a successful transaction of the shares, which was later received.

• FHR later claimed for recovery of €10m from Cedar as they owed a fiduciary duty meaning they could not make a secret commission; accordingly, FHR claimed all profits were held on constructive trust

• The Supreme Court held there was a constructive trust on the fee for FHR

  • "The law took a wrong turn in Heiron and Lister, and those decisions and any subsequent decisions [...] at least in so far as they relied on or followed Heiron and Lister should be treated as overruled."

    • Lord Neuberger goes on to dismiss the remedial approach → this case was very formulaic and applied an institutional approach

    • “The remedial constructive trust represents an unnecessary weapon in the judicary’s armoury” Lord Neuberger (extra-judicially)

• Irish courts likely to adopt this

Barnes v Addy liability

Advantages gained by third parties to a fiduciary relationship

two branches of third party liability?

(1) knowing receipt

(2) knowing assistance

Knowing Receipt

• a legal principle that holds third parties liable when they receive property that has been transferred in breach of trust or fiduciary duty.

key elements of knowing receipt

1. Breach of trust or fiduciary duty: the property must have been transferred as a result of a breach of trust or fiduciary duty.

2. Receipt of property: the third party must have received the property for their own use and benefit.

   • Agip (Africa) Ltd v Jackson [1990]: a recipient is only liable if they receive the property for their own benefit (e.g. using funds to reduce a personal debt). Banks acting as mere intermediaries are generally not liable.

3. Knowledge of the breach: the recipient must have sufficient knowledge of the breach.

🇬🇧 Test for knowing receipt: ENGLAND

BCCI v Akindele [2001];

liability arises if the recipient has enough knowledge that it would be unconscionable to retain the benefit

BCCI v Akindale [2001]

• Background: the defendant, a Nigerian businessman, entered into an agreement with a Cayman Island banking company.

• Agreement terms:

  • The defendant paid a large sum in exchange for shares in the holding company.

  • The company promised to sell the shares after two years, guaranteeing a 15% return.

  • The agreement was artificial - no actual share transfer was expected, just a high return.

• Fraudulent purpose:

  • Employees of a sister company arranged the deal fraudulently.

  • Their aim was to falsely boost the holding company's capital by funding share acquisition through dummy loans.

  • The defendant's money was used to make these loans appear legitimate in the balance sheet.

• Liquidator's claim:

  • When the company collapsed, the liquidator sought to recover the defendant's money.

  • Claimed it was knowingly received due to its misapplication by fiduciaries.

• Court findings:

  • The trial judge found the defendant unaware of the fraudulent scheme.

  • Though the agreement was artificial, it was not clearly illegal.

• Court of Appeal:

  • Nourse LJ ruled it was not unconscionable for the defendant to keep the money.

  • Since he lacked sufficient knowledge of wrongdoing, he was not liable for knowing receipt.

🇮🇪 Test: Knowing Receipt IRELAND

• actual/constructive knowledge of the breach is sufficient

Re Fredericks Inns [1994]

• Case arose from the liquidation of a group of public houses in Dublin. The companies were insolvent and owed significant tax debts to the Revenue Commissioners.

• Before the winding up order, assets of four companies were sold and proceeds were used to reduce tax debts of all companies in the group.

• The directors were not authorised by the companies' memorandum and articles to use assets from one company to pay off the debts of another.

• High Court ruling: payments were ultra vires.

• Supreme Court ruling:

  • Confirmed the ultra vires nature of the payments.

  • Held that the payments were held on constructive trust for the four companies whose assets had been misapplied.

  • Found the revenue liable as a constructive trustee because it had actual or constructive notice of the improper payments.

  • Stated that knowledge of the companies' memorandum and articles was attributed to the revenue, as they were public documents.

Inconsistent dealing

Applies when someone (e.g. an agent of the trustee) lawfully receives trust property but later misappropriates it or deals with it in a way that contradicts the terms of the trust.

knowing assistance

Knowing assistance occurs when a third party dishonestly helps a fiduciary or trustee breach their duty.

key elements of knowing assistance?

(1) Breach of trust or fiduciary duty - i.e. a fiduciary commits a wrongful act.

(2) Dishonest assistance by a third party - the third party actively helps in the breach.

old approach to knowing assistance?

Baden v Société Générale du Commerce SA [1983]

Peter Gibson J had proposed five categories of knowledge which could render a third party liable for assisting a breach of trust:

(1) Actual knowledge;

(2) Wilfully shutting one's eyes to the obvious;

(3) Wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make;

(4) Knowledge of circumstances which would indicate the facts to an honest and reasonable person;

(5) Knowledge of circumstances which would put an honest and reasonable person on inquiry.

New approach to knowing assistance in England??

focus is on the dishonesty of the third party, not just their knowledge.

Royal Brunei Airlines v Tan Kok Ming [1995]:

• Lord Nicholls said that the essential test was whether the third party's conduct had been dishonest, that the expression 'knowing assistance' should be avoided and that these five criteria were 'best forgotten'.

Royal Brunei Airlines v Tan Kok Ming [1995]:

• Royal Brunei Airlines sold tickets through a travel agency, BLT.

• The contract required ticket sale proceeds to be kept in a separate account.

• Instead, BLT used the money for its own expenses.

• Defendant's role:

  • Tan was the director and principal shareholder of BLT

  • He knew that BLT was misusing the funds to stay afloat.

• Legal claim:

  • The airline sued Tan, arguing he was personally liable for knowing assistance in the breach of trust.

• Significance:

  • Established that dishonesty (not just knowledge) is key in knowing assistance cases.

  • Held that a third party can be liable even if the fiduciary (BLT) was not dishonest.

corporate alter ego

• Grimaldi v Chameleon Mining NL (No.2) [2012] (Australian Federal Court):

  • 'where the third party is the corporate creature, vehicle or alter ego of wrongdoing fiduciaries who use it to secure the profits of, or to inflict the losses by their breach of fiduciary duty... the corporate vehicle is fully liable for the profits made from, and the losses inflicted by, the fiduciary's wrong... liability does not turn on the need to show 'dishonesty' although it often provides the reason for the interposition of the company. Proof of a breach of fiduciary duty will suffice.'

irish case on corporate alter ego?

Victoria hall management v cox [2025]

trustees de son tort

a trustee de son tort is someone who, without being formally appointed, interferes in trust affairs or acts as a trustee without authority, thereby assuming the liabilities of a trustee

Mara v Browne [1896]

if one, not being a trustee and not having authority from a trustee, takes upon himself to intermeddle with trust matters or to do acts characteristic of the office of trustee he may thereby make himself what is called in law a trustee of his own wrong - i.e. a trustee de son tort, or as it is also termed, a constructive trustee.'

Blyth v Fladgate [1891]

• a firm of solicitors had custody of trust funds

• after the trustee's death, the solicitors took it upon themselves to invest the trust money on the security of a mortgage which proved to be inadequate and were liable when this caused a loss to the trust.

mutual wills

The doctrine of mutual wills dates back to the late 18th century, when it was established in Dufour v Pereira [1769]. Mutual wills arise where two (or more) people have made an agreement as to the disposal of their property through wills and each has, in accordance with agreement, executed a will. The doctrine is based upon the mutuality of obligations; each testator making provisions by will in return for provisions made by the other(s). This is quite a common occurrence in the marital context. Often a husband and wife will make mutual wills where each leaves all his or her property to the other and their children.

modern rationale for mutual wills?

One might consider the rationale for such a doctrine as a way for couples - especially in second or later marriages - to protect assets for children from earlier relationships, while allowing the surviving partner to use the property during their lifetime. It's often used to keep property within a family and ensure support for a spouse. Though the concept is over 200 years old, it still fits modern blended families. Mutual wills act like a trust: they aren't flexible, but that's also their strength, ensuring property goes where it was intended, despite future changes in relationships.

three elements of mutual wills?

from Dixon J in Birmingham v Renfrew [1937]

(1) agreement or contract and its terms as to the binding disposition of the property

(2) one of the parties survives without revoking his or her will

(3) the trust is imposed.

Dufour v Pereira [1769]

On the actual operation of the arrangement, it may take different forms, but it is clear where such wills are made in pursuance of an agreement to that effect and the survivor alters his will, his estate will be held by his personal representatives on a constructive trust for the benefit of the persons entitled under the will made by him in pursuance of the agreement.

proof of agreement?

• essential there be evidence of an agreement - the mere making of mutual wills is not in itself sufficient to give rise to the constructive trust (Re Oldham [1925] and Re Goodchild [1997])

Re Hagger [1930]

evidence of the agreement may be found in the wills themselves

Re Cleaver [1981]

• An elderly couple got married in 1967 and made wills leaving their respective properties to each other and to the husband's three children in default.

• In 1974 they made further wills, reducing the share of one of the children, M, to a life interest.

• The husband died first and the wife made a new will which was consistent in its terms with the earlier wills.

• She then made a further will enlarging M's interest to an absolute interest.

• By her final will, she left her entire estate to M and her husband and nothing to the other two children.

• It was held that the executors held the estate in trust for the beneficiaries under the 1974 will.

• There was sufficient evidence of an agreement to make mutual wills in the fact that the parties had made successive wills at the same time and in similar terms, the reductions of M's interest in the 1974 will, the terms of the will made after the husband's death and statements by the wife that she regarded herself as under an obligation to leave her estate to the children.

when does the trust come into being?

It is also clear that the trust comes into being on the death of the first testator, since it has been held that where a beneficiary dies after the death of one testator but before the death of the survivor, his interest does not lapse and vests in his estate on the death of the survivor.

Re Dale [1944]

It was at one time thought that there was no trust where the survivor did not benefit under the first will and that the trust only came into being when the survivor elected to take under the first will. However, in Re Dale [1944] it was held that, since the purpose of the doctrine is to avoid a fraud being perpetrated on those intended to be benefited by the agreement to make mutual wills, it applies whether or not the survivor benefited from the first will.

what is the trust in a mutual will?

'floating obligation' that will crystallise upon the death of the survivor (Birmingham v Renfrew [1937])

who can object to frustration of trust in mutual wills situation?

Any attempt by the survivor to frustrate the constructive trust during their lifetime can, it appears, be objected to by the beneficiaries of the original, mutual wills.

Healey v Brown [2002]

• Clear attempt to circumvent the trust.

• The husband and wife had made mutual wills, under which their respective shares in an apartment which they jointly owned were to go to the wife's niece.

• The wife having died first, the husband entered into a voluntary settlement to transfer all his interest in the apartment (including that inherited from his wife) to his son.

• It was held that there was no constructive trust affecting his own interest in the apartment, since there had to be, it was said, an enforceable agreement to enter into mutual wills and such an agreement, in the case of land, had to be in writing under the provisions of the English law of property (miscellaneous provisions) Act 1989.

• In the case of the share which the husband inherited, however, no writing was required because his entitlement to that interest was affected by the constructive trust arising from the mutual wills.

• It is a somewhat mystifying distinction, since there is little in the earlier authorities to suggest that the agreement giving rise to the constructive trust must comply with statutory formalities.

• Nor is it clear why that requirement should apply to the husband's share but not to the wife's share or why, in either case, the provisions of the English Act exempting constructive trusts of land from the requirement as to writing did not apply.

Walter v Olins [2008]

'the likelihood is that in future even fewer people will opt for such an arrangement and even more will be warned against the risks involved.'

property acquired by a joint tenant by killing a co-tenant

• if someone kills a property owner - and would normally inherit the property - equity says they cannot keep it.

• instead, they are treated like a trustee (Cleaver v Mutual Reserve Fund Life Association [1892]).

However, in joint tenancy ownership is automatically passed by the severing co-owners when one dies by right of survivorship.

S. 120(1) Succession Act 1965

sorts this issue out when someone would inherit the property

Cawley v Lillis [2001]

• The defendant was convicted of the manslaughter of his wife, and their daughter, as personal representative, claimed that their jointly owned properties should belong entirely to the wife's estate.

• The defendant initially argued that her inherited all the property but later abandoned this claim.

• Laffoy J reviewed case law from England, Canada and New Zealand and considered three possible approaches:

• The property devolves entirely to the wife's estate.

• The joint tenancy is severed, and the property is shared between the estate and the defendant as tenants in common.

• The defendant holds at least half the property on constructive trust for the estate.

• The judge chose the third option, rejecting the claim that the estate should receive the entire property, as the defendant could have severed the tenancy while the wife was alive.

• Laffoy J noted that legislative reform was needed but emphasised that any changes must respect constitutional property rights.

• Following this case, the LRC recommended that courts should have discretion in determining how to apportion jointly owned property in similar cases.

• so, the D technically kept his half but because of the constructive trust he couldn't benefit from the other half.

AFTER: Cawley v Lillis [2001]

• Laffoy J noted that legislative reform was needed but emphasised that any changes must respect constitutional property rights.

• Following this case, the LRC recommended that courts should have discretion in determining how to apportion jointly owned property in similar cases.

Pallant v Morgan [1953]

• They arise where two parties are interested in acquiring the same property but one of them agrees to refrain from bidding.

• This will normally happen because they have in mind some form of joint venture should the bidding party secure the property and it would be to the advantage of both of them to keep the price as low as possible.

Pallant v Morgan on agreement?

no need for enforceable agreement, just needs to be inequitable for the successful bidder to retain the entire interest in the property, the court may declare the property to be held on a constructive trust for both of them.

Pallant v Morgan [1953]

• Two landowners were both interested in acquiring the same property at auction to protect or enhance their own holdings.

• The plaintiff agreed not to bid based on an understanding that, if the defendant won, they would divide the land between them.

• The plaintiff's agent, authorised to bid up to £2000, refrained from bidding and the defendant's agent won the lot for £1000 despite having authority to bid up to £3000.

• The defendant later refused to honour the arrangement and sought to keep the land.

• The defendant argued that there was no enforceable agreement, but Harman J ruled that it be tantamount to fraud for the defendant to exclude the plaintiff after benefitting from their agreement.

• The court declared that the defendant held the property jointly for himself and the plaintiff, ordering its sale and division of proceeds with the defendant credited for the £1000 he paid.

Banner Homes Group plc v Luff Developments [2000]

• Chadwick LJ outlined the key features of this type of constructive trust.

• There must be an understanding or arrangement between the parties before the acquisition, even if it is not a formal agreement.

• It must be inequitable for the acquiring party to deny the interest of the other party.

• The arrangement must envisage that one party will acquire the property and that the other will receive an interest in it.

• The acquiring party must not have informed the other before acquisition that they would not honour the arrangement.

• The other party must have relied on the arrangement, either:

• Providing an advantage to the acquiring party (e.g. securing the property on better terms) or

• Suffering a detriment by losing the opportunity to compete on equal footing.

Shiel v McKeon [2007]

• The plaintiff (a solicitor) and the defendant (a businessman) were both interested in purchasing a seaside property in Sligo.

• The defendant offered €435,000 which was accepted by the seller's agents, though no contract was signed or deposit paid.

• The plaintiff then expressed his interest in acquiring the house and garden and proposed a division of the property and price. The defendant was noncommittal but suggested discussing it with his solicitor.

• The plaintiff later learned he would need to offer €500,000 to buy the property but did not inform the defendant of this. Instead, he negotiated an agreement with the defendant's solicitor for the division of the property but this was marked subject to contract.

• The defendant went ahead with the full purchase and refused to honour the arrangement, leading the plaintiff to claim a Pallant v Morgan trust.

• Clarke J found that the elements of such a trust were present - there was an understanding, and the plaintiff acted to his detriment by not negotiating further.

• However, the claim was dismissed because the plaintiff failed to disclose the €500,000 requirement, misleading the defendant and violating the clean hands doctrine in equity.

the vendor under a specifically enforceable contract for sale

questionable whether this is a trust or not.

previous position - Tempany v Hynes [1976] where the vendor was trustee of the beneficial interest only to the extent that the purchase price had been paid.

legislative reform: s. 52 of LCLRA 2009 which sets out buyer becomes the equitable owner immediately after the contract is enforceable so the buyer bears the risk

but: Law Society conditions of Sale stipulates that risk will not pass until completion which protects the buyer who doesn't realise they should insure immediately.

1) seller still retains some benefit in the property - can collect rent, etc.

2) has some responsibilities

3) main duty is to preserve the property for the buyer - Clarke v Ramuz [1891]

Lysaght v Edwards

the moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold

Raynor v Preston [1881]

whether it is a true description of the relationship between the parties to say that from time of the making of the contract, or at any time, one is ever trustee for the other

the position of a mortgagee

when a lender (mortgagee) sells a mortgaged property, they first use the proceeds to pay off the mortgage debt. If there is any surplus left after this, the lender holds it on a constructive trust - first for any other mortgagees (if there are multiple mortgages) and then for the original borrower (mortgagor). This is required by s. 107(2) of the Land and Conveyancing Law Reform Act 2009.

secret trusts

While there is some disagreement as to whether such trusts are properly classified as express or constructive trusts, the balance of the argument would seem to be in favour of treating them as constructive trusts.

Brown v Pourau [1995]

A half-secret trust is still best characterised as an express trust.

conveyance obtained by fraud

so, if a property transfer is obtained by fraud, equity will not allow the fraudster to use legal formalities (such as the requirement for written proof of a trust under the Statute of Frauds (Ireland) 1695) to escape their obligations. In Rochefoucauld v Boustead [1897] the court allowed oral evidence to prove the trust. A more modern view, seen in Bannister v Bannister [1948] is that instead of enforcing the express trust, equity imposes a constructive trust, which does not require written formalities. This prevents fraud and ensures fairness.

the new model constructive trust

Lord Denning in Hussey v Palmer [1972]; 'By whatever means it is described, it is a trust imposed by law wherever justice and good conscience require it. It is a liberal process, founded upon large principles of equity, to be applied in cases where a defendant cannot conscientiously keep the property for himself alone, but ought to allow another to have the property or a share in it ... it is an equitable remedy by which the court can enable an aggrieved party to obtain restitution.'

facts of Hussey v Palmer [1972]

• In that case, the plaintiff had been living with her daughter and son-in-law. She had paid £607 to a contractor to build another room in the expectation that she could live there for the rest of her life. When disputes later arose and she left, she sought the return of the £607. She was in obvious difficulties in an informal arrangement of this sort in establishing that it was a loan rather than a gift, but Lord Denning did not consider them insuperable. Having observed in passing that it did not matter whether one proceeded by way of a resulting trust or a constructive trust, he went on:

• 'By whatever means it is described, it is a trust imposed by law wherever justice and good conscience require it. It is a liberal process, founded upon large principles of equity, to be applied in cases where a defendant cannot conscientiously keep the property for himself alone, but ought to allow another to have the property or a share in it ... it is an equitable remedy by which the court can enable an aggrieved party to obtain restitution.'

• Hence the plaintiff was entitled to a share in the house proportionate to her contribution.

Eves v Eves [1975]

An unmarried woman shared a house with a man who insisted on keeping it solely in his name because she was under 21 (the age of majority at the time).

She contributed significantly by doing heavy repair work on the house.

When the relationship ended, she was awarded a one-quarter share in the property.

Lord Denning described this as a 'constructive trust of a new model', recognising her equitable interest.

As we have seen from Hussey v Palmer [1972], Denning's approach is couched in such wide and vague terms that it is not a satisfactory basis for determining property rights.

It appears to have little regard to the implications for third parties, particularly where the beneficiary's rights were in competition with creditors on an insolvency.

new model constructive trust in England?

While the new model constructive trust has been discredited in English law

Ireland and new model constructive trust?

been applied a number of times in the Irish courts in recent years

HKN Invest Oy v Incotrade PVT Ltd [1993]

Company promoters entered into contracts on behalf of a company, some before it was incorporated.

The company later became insolvent and entered liquidation.

Creditors, who had judgements against both the company and the promoters, tried to recover sums paid to the promoters under these contracts.

The liquidator asked the court whether these sums were held under a constructive trust for the company, preventing creditors from claiming them.

Costello J, citing Hussey v Palmer [1972], held that if someone holds property that should "in equity and good conscience" belong to another, they must hold it in trust.

Since the promoters never beneficially owned the sums, they were deemed to hold them in trust for the company.

The judge's reasoning was understandable, as it ensured creditors could access funds that belonged to the company.

For post-incorporation contracts, the promoters, acting as de facto directors, owed fiduciary duties and were liable as constructive trustees.

However, for pre-incorporation contracts, the lack of a fiduciary relationship before incorporation made the constructive trust conclusion more questionable.

Murray v Murray [1996]

The defendant legally owned a house, paying the deposit while the rest was covered by a mortgage.

He allowed his sister to live there with the plaintiff (his nephew); she paid rent, rates and mortgage installments until her death.

The defendant wanted to transfer ownership to his sister and sent her the documents, but she never signed them - they were later found hidden in a cupboard after her death.

After her death, the nephew moved in with his fiancée. When the defendant later visited, the fiancée (unaware he was the owner) refused him entry, leading to a breakdown in relations and litigation.

Barron J, citing Hussey v Palmer, ruled that the key issue was whether it would be unconscionable to deny the deceased sister any interest in the house.

Since her payments covered three-quarters of the purchase price, Barron J held that the nephew was entitled to three-quarters of the beneficial interest.

However, the ruling was questionable, as the sister never considered herself entitled to ownership, and she had been content to pay in exchange for living there.

The decision seems difficult to justify, even if Hussey v Palmer was correctly applied, since the defendant's refusal to acknowledge her interest was not necessarily unconscionable.

Kelly v Cahill [2000]

The deceased wanted to change his will so that his wife would inherit all his assets, and his nephew (a previous beneficiary) would receive nothing.

His solicitor advised that the best way to achieve this (for tax reasons) was to transfer all assets to joint tenancy with his wife, ensuring she inherited everything by survivorship.

However, the solicitor mistakenly omitted some land from the transfer, so it remained under the will, giving the wife a life interest and the nephew full ownership after her death, subject to her legal right share of half the land.

Barr J, citing Hussey v Palmer and other sources, focused on whether the evidence showed a clear intention that the wife should inherit everything.

He ruled that it was irrelevant that the nephew was unaware of or not responsible for the mistake.

Justice and good conscience required that the nephew should not inherit any part of the deceased's property.

The judge held that the nephew's interest was held on constructive trust for the wife.

Barr J supported the recognition of 'new model' constructive trusts in Irish law to prevent unjust enrichment, citing Costello J's view in HKN Invest Oy v Incotrade PVT Ltd [1993].

Kenny v Kenny [2019]

on the facts, O'Connor J rejected the plaintiff's argument that the imposition of a constructive trust would avoid an 'inappropriate' and 'grossly inequitable' result, without challenging the proposition that this could justifiably by the basis for the imposition of such a trust.

constructive trusts not recognised in Ireland?

constructive trusts over the family home

- Common intention constructive Trust (England)

- Joint Endeavour Constructive Trust (Australia)