Constructive Trusts

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Constructive trusts are trusts imposed by the court to remedy an unconscionable insistence on a legal title. They can be imposed irrespective, and sometimes even contrary to, the intention of the parties to create a trust. The appropriate test whether to impose a constructive trust is:

  • A constructive trust will be imposed when the legal title owner's insistence that he is the sole owner is unconscionable: Baumgartner v Baumgartner.[1]
    • The insistence might be unconscionable because of financial contributions to the property on behalf of another: Baumgartner v Baumgartner.[2]

In marital relationships, these law principles have been replaced by s 79 of the Family Law Act 1979 (Cth), which allows the court to alter the interests of the parties, based on:

  • Contributions made by a party to the acquisition, conservation or improvement of the property;
    • Financial and non-financial contributions, including those made by a ‘homemaker or parent’: s 79 (4) (a), (b).[3]
  • The financial resources of each party: s 75 (2).[4]
  • The parties’ age, state of health and capacity for employment: s 75 (2).[5]
  • The parties’ individual responsibilities towards the children of the marriage: s 75 (2).[6] and
  • The effect of any proposed order on his or her earning capacity: s 75 (2).[7]

Homosexual de-facto couples are governed by a different legislation, which gives the court similar rights and similar considerations: s 20, Property Relationships Act 1984 (NSW). Equity principles are not replaced, by preserved, and couples may use them.

Constructive trusts are used as a remedy in a variety of other situations, most notably breach of fiduciary duty.

This article is a topic within the subject Property, Equity and Trusts 1.

Contents

Required Reading

Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008, pp. 362-384 [4.101-4.120].

Introduction

Constructive trusts are imposed by the court to remedy and prevent unconscionable conduct.[8]

  • Constructive trusts are distinct from resulting trusts in that they are imposed irrespective of the intentions of the parties.
  • Thus, courts look not at the intentions of the parties, but on whether the principles of equity require its imposition. [9]

Common Intention Constructive Trusts

USG notes: these aren't the usual type of constructive trusts and the 'requirements' set here saying that a constructive trust only arises in those circumstances are now outdated. Constructive trusts are now mainly based on unconscionability and that is dealt with below. As a result, we didn't summarise all small cases in the 'questions' part of the textbook, but only the big ones.

[10] A common intention constructive trust is a hybrid form of trust. It arises where there was a common intention to give property, but that transfer failed, and the (supposed) beneficiary has suffered a loss from his reliance on the trust.

  • In such a case, a constructive trust will be imposed to remedy that loss.
  • It is better to see these as express trusts which lack writing - in other words, the express trust is imposed despite the failure to comply with the writing requirements of express trusts.[11]

This was discussed in Ogilvie v Ryan:

  • The present case didn't fall into the usual cases where constructive trusts can be imposed.
  • However, the common intention of the parties clearly show that the Defendant was to receive beneficial interest.
  • Equity is able to intervene when there is an unconscionable use of legal title to deny someone's beneficial ownership, and therefore a constructive trust arises here.

And also in Allen v Snyder:

  • The court imposes a common intention constructive trust based on the intention of the parties. It can look at actual and implied intention, but not imputed intention (ie, where the parties did not actually have the intention, but court says they should have had).

These cases are no longer completely true. The requirements and bars set in them are no longer exhaustive because now there is another, broader scenario in which constructive trusts are imposed.

Constructive Trusts Based on Unconscionable Use of Legal Title

[12] Where no common intention can be found, intention can be imputed by the court where it would be unconscionable to use legal title. This option was created in Baumgartner v Baumgartner:

  • In Allen v Snyder, Mahoney JA (and not Glass JA, quoted above) was correct in acknowledging that a constructive trust may be imposed irrespective of the parties’ intentions to create a trust.
  • The appropriate test to impose a trust is not whether it is ‘fair’ or ‘reasonable’, but whether it is unconscionable not to impose a trust in the circumstances.

Similar issues were discussed in Henderson v Miles (No 2):[13]

  • Facts: a woman built a house on her son & daughter-in-law’s land and lived there. The relationship broke down, and she was asked to leave.
  • Held: The court granted her the value of her expenditure to build the house, as it held that it would be ‘unconscionable for one of the parties to retain a windfall which the parties never contemplated that that party would receive’. However, the court applied discounts for (a) her life estate, (b) her age and (c) the possibility of her leaving the property before death.

And in McKenzie v Storer:

  • To refuse to give effect to the intention of the parties is unconscionable, and a constructive trust will be imposed in order to give intention to those parties.
  • A party which insists on its legal title despite the fact that it was not the intention of either parties for that party to have it, will be deemed as acting unconscionably.

The Baumgartner case (and others) still discriminated against women’s traditional domestic roles in relationships - while it acknowledged the value of domestic renovations, it placed no value on household work and child rearing (in the 'contribution to the house'). Note that the same discrimination applies in resulting trusts. Arguably, this is a reflection of the gender bias of the legal system.

  • In Bryson v Bryant,[14] Kirby P (in a dissenting judgment) condemned the majority's ruling that it was not unconscionable for the husband to retain the benefit of his wife’s domestic contributions over 60 years.
    • Kirby said that the court should not leave those who have provided 'women’s work' over their adult lifetime to be told condescendingly, by a mostly male judiciary, that their services should be regarded as freely given labour only. A constructive trust should have been imposed.
  • In Miller v Sutherland,[15] the Court took into account contributions made by the woman in renovating the house.
    • It is perhaps an indication that the court is willing to recognise labour in the form of house renovations, rather than housework & childrearing because it contributes more directly to the value of the property.

Constructive Trusts and Fiduciary Relationships

[16] Apart from family property disputes, there are a range of cases where a court will impose a constructive trust. Examples include:

  • To prevent a fiduciary from profiting from a fiduciary relationship.[17]
  • To prevent a criminal from retaining the fruits of crime.[18]
  • Arising from mutual wills.[19]
  • To prevent retention of money paid to the defendant by mistake.[20]

Legislative Reform

Marital Relationships

[21] In cases of married couples, the principles of Ogilvie v Ryan and Baumgartner v Baumgartner have mostly been replaced by legislation.

  • s 79 of the Family Law Act 1979 (Cth) allows the court to make orders as it considers just and equitable. It can alter the interests of the parties, taking into account the criteria in the legislation, including:
    • Contributions made by a party to the acquisition, conservation or improvement of the property;
      • This includes financial and non-financial contributions, including those made by a ‘homemaker or parent’;[22]
    • The financial resources of each party;[23]
    • The parties’ age, state of health and capacity for employment;[24]
    • The parties’ individual responsibilities towards the children of the marriage;[25] and
    • The effect of any proposed order on his or her earning capacity.[26]

The equitable provisions relating to constructive trusts still apply to areas which the Family Law Act does not cover in s 79, including:

  • Between a party to a marriage and a third party (eg, a wife and a creditor of her husband); or
  • In contests between the party to a marriage and a person claiming under the estate of the deceased spouse.[27]

Non-Marital Relationships

[28] The Family Law Act does not apply to de-facto partners or any other type of familial relationship. Homosexual de-facto couples are governed by the Property Relationships Act 1984 (NSW).

  • s 20 - gives the power court to vary property rights of homosexual couples, in a similar fashion and similar considerations as the Family Law Act.
  • The legislation preserves the operation of equitable principles, enabling partners to make claims on constructive trusts or the Baumgartner principle.
  • Some de-facto partners will not be within the jurisdictional requirements, for example, because they have not lived together for the requisite period (to be a 'de-facto' couple).[29]
  • A partner may not qualify because they are not in a heterosexual relationship, but it has been extended in most states including NSW.[30]
  • De facto relationships legislation does not apply in disputes involving one partner in a de facto relationship and a third party claiming an interest in the property of the other partner.
  • The NSW legislation applies to ‘all domestic relationships’. Domestic is defined as a:
    • Relationship (other than a marriage or de-facto relationship) between two adult persons, whether or not related by family, who are living together, one of whom provides the other with domestic support and personal care.[31]

End

This is the end of this topic. Click here to go back to the main subject page for Property, Equity and Trusts 1.

References

Property Textbook refers to Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008.

Equity Textbook refers to Evans, Equity and Trusts, 3rd edition, Lexis Nexis, 2012.

  1. (1987) 164 CLR 317.
  2. (1987) 164 CLR 317.
  3. Family Law Act 1979 (Cth), s 79 (4) (a), (b).
  4. Family Law Act 1979 (Cth), s 75 (2).
  5. Family Law Act 1979 (Cth), s 79 (4) (c).
  6. Family Law Act 1979 (Cth), s 79 (4) (c).
  7. Family Law Act 1979 (Cth), s 79 (4) (d).
  8. Baumgartner v Baumgartner (1987) 164 CLR 317.
  9. Muschinski v Dodds (1985) 160 CLR 583.
  10. Property Textbook, pp. 362-3 [4.101-4.102].
  11. Allen v Synder [1977] 2 NSWLR 685.
  12. Property Textbook, pp. 374-81 [4.109-4.116].
  13. (2007) 12 BPR 23,579.
  14. (1992) 29 NSWLR 188.
  15. (1990) 14 Fam LR 188.
  16. Property Textbook, pp. 381-3 [4.117-4.118].
  17. See Breach of Fiduciary Duty.
  18. Rasmanis v Jurewitsch (1969) 70 SR (NSW) 407.
  19. Birmingham v Renfew (1937) 57 CLR 666.
  20. Pavey & Matthews v Paul (1986) 162 CLR 221.
  21. Property Textbook, p. 383 [4.119].
  22. Family Law Act 1979 (Cth), s 79 (4) (a), (b).
  23. Family Law Act 1979 (Cth), s 75 (2).
  24. Family Law Act 1979 (Cth), s 79 (4) (c).
  25. Family Law Act 1979 (Cth), s 79 (4) (c).
  26. Family Law Act 1979 (Cth), s 79 (4) (d).
  27. Bryson v Bryant (1992) 29 NSWLR 188.
  28. Property Textbook, pp. 383-4 [4.120].
  29. Property Relationships Act 1984 (NSW), s 17 (1).
  30. Property Relationships Act 1984 (NSW), s 4.
  31. Property Relationships Act 1984 (NSW), s 5.
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