Overlap between Proprietary estoppel and Constructive Trust

Before you embark upon understanding the overlap between proprietary

estoppel and constructive trust; you should first understand what is
proprietary estoppel and constructive trust.

Constructive Trust

Constructive trusts are trusts that may be implied in the absence of a

declaration of trust, where the trustee has induced another to act to their
detriment in the belief that if they do so act to their detriment they would
acquire a beneficial interest in the land (Gissing v Gissing)

There is an overlap with resulting and constructive trusts since both

generally involve a contribution to the purchase price, however, the two
types of trusts are distinct. Whilst under resulting trusts the beneficial
entitlement is calculated mathematically in proportion to the contribution
to the purchase price, the shares in constructive trusts are determined by
a number of factors that may result in the share being much greater than
the amount contributed. There is also an overlap with constructive trusts
and proprietary estoppel since both require detriment and work on the
basis that it would be unconscionable for the legal owner to deny the
existence of the beneficial interest.

A constructive trust is an equitable remedy imposed by a court to benefit a

party that has been wrongfully deprived of its rights due to either a person
obtaining or holding a legal property right which they should not possess
due to unjust enrichment or interference, or due to a breach of fiduciary
duty, which is overlapping with with unjust enrichment and/or property
interference. It is a type of implied trust (i.e., it is created by conduct, not
explicitly by a settlor).

Constructive trusts are imposed by operation of law. (They are

automatically made). They are also referred to as implied trusts. They are
not subject to formality requirements. Unlike a resulting trust, which also
arises by operation of law, (this is another type of trust that is made
automatically), a constructive trust does not give effect to the
imputed/presumed intention of the parties. (Yani resulting trust mein
intention is presumed, CT is absolutely automatic).

Instead, constructive trusts are largely said to be triggered by

unconscionability (Bad faith). This is the idea that a defendant would be
unjustly enriched if they were allowed to keep property for themselves.
The main issue with this argument is that we would have to have a really
broad approach to unjust enrichment in order for a constructive trust to
come under that underpinning concept in order for us to understand
constructive trust.

A constructive trust is established by the court, when two parties are

involved in a civil dispute over property. It might be created when
someone is unfairly given ownership over property, which could happen
because of deliberate misconduct or a mistake in a property transfer.

A constructive trust is one that arises by operation of law against one who,
by fraud, actual or constructive, by duress or abuse of confidence, by
commission of wrong, or by any form of unconscionable conduct, artifice,
concealment, or questionable means, or who in any way against equity and
good conscience, either has obtained or holds the legal right to property
which he ought not, in equity and good conscience, hold and enjoy.

Requirements of CT

In Paragon Finance plc v DB Thakerar & Co, Millett LJ defined a

constructive trust as a trust that "arises by operation of law whenever the
circumstances are such that it would be unconscionable for the owner of
property (usually but not necessarily the legal estate) to assert his own
beneficial interest in the property and deny the beneficial interest of
another".

Essentially, a constructive trust arises whenever an owner either ignores,

or interferes, with the rights of another person with an interest in that
property. There is a distinction between personal and proprietary rights to
property. A constructive trust normally gives a proprietary right to the
beneficiary that can be enforced on any other person.

Constructive trusts, under Section 53(2) of the Law of Property Act 1925,
do not require any particular formalities on creation, unlike express trusts.
For them to be valid, however, the defendant (or "trustee" of the
constructive trust) must know that he has dealt with property in an
"unconscionable manner".

Unconscionable dealings with property

When the owner of property deals with it in such a way as to deny or

impede the rights of some other person over that property, the courts order
that owner to hold it on constructive trust. For trusts of real property,
constructive trusts may arise in one of three situations.

1. When the parties form an agreement to buy the land, or show

"common intention" by jointly contributing to the price or mortgage
of a property, as in Lloyds Bank plc v Rosset.

2. Second, when a contract to transfer rights is agreed to, the equitable

interest is automatically transferred, something that also applies to
personal property.

3. Third, a constructive trust may be created where there are several

parties interested in commercially exploiting land, and some refrain
from doing so due to an agreement with the defendant, as in Pallant
v Morgan.

Many constructive trusts relate to the transfer of property. Those trusts

over homes are known as trusts of common intention, and relate
exclusively to family homes. In Lloyds Bank v Rosset, the House of Lords
set out the circumstances in which a trust of common intention can arise.

1. Where the parties demonstrate that there was an agreement formed

before the acquisition of the property. (inducement)

2. where the parties contribute to the purchase price or mortgage

payments and therefore practically demonstrate a common intention
to claim an equitable interest; this second form is similar to one form
of resulting trust. Common intention trusts grant a claimant an
equitable right to the home, calculated as a proportion of the total
 value that corresponds to their financial contributions. The second
occasion on which a constructive trust may arise over property is
where a piece of property is sold or transferred. The contract
transfers the equitable interest from the original owner to the other
party, which takes place through a constructive trust. This originated
with Chinn v Collins, where it was decided that the creation of such a
contract automatically passes the equitable interest to the buyer,
assuming the contract can be completed. Until it is completed, that
property is held on constructive trust by the seller for the benefit of
the buyer. This applies to both personal and real property, with
additional rules for the transfer of real property (land). Section 2 of
the Law of Property (Miscellaneous Provisions) Act 1989 provides
that the contract must be in writing, which is not a requirement for
the transfer of personal property. (detriment)

Summary of Constructive trust:

1. Inducement

It must be shown that the legal owner of the land induced the claimant to
believe they would be entitled to a share in the ownership. There are two
ways of demonstrating this:

i) Express agreement
ii) Contribution to the acquisition

2. Claimant must act to their detriment for example by contribution to

purchase price.

Requirements:

1. Common intention

In Lloyds Bank v Rosset [1991] 1 AC 107 (case summary) the House of

Lords drew a distinction between an express common intention and an
inferred common intention

Express common intention

An express common intention requires evidence of express discussions
between the parties which demonstrates that the property is to be shared
beneficially HSBC Bank Plc v Dyche [2009]

Inferred common intention

In the absence of an express agreement, a common intention may be

inferred from the conduct of the parties. In Lloyds Bank v Rosset Lord
Bridge was of the opinion that only a substantial contribution to the
purchase price would suffice. Lloyds Bank v Rosset [1991]

2. Detriment
Once it has been established that there was a common intention, it
then needs to be established that the person seeking to assert a
beneficial interest acted to their detriment. Where a common
intention is inferred rather than express, the conduct leading to the
inference will generally suffice to demonstrate detriment. The issue
of detriment therefore has more significance in relation to express
common intention. The level of detriment required is less in express
common intention than that required to infer a common intention as
statements made by Lord Bridge in Lloyds Bank v Rosset indicate.
A direct contribution to the purchase price will count as detriment
but so will other factors including:

Home improvements: Eves v Eves [1975]

Financial contribution to house hold expenses: Grant v
Edwards [1986]

Quantifying the beneficial interest where legal title is in single name

Where there is an express common intention, the claimant should be

entitled to share of the equitable ownership based on what share was
intended. However, this did not seem to apply in: Eves v Eves [1975]

Where the common intention is inferred, the court is required to make an

assessment by undertaking a survey of the whole course of dealing
between the parties: Midland Bank v Cooke [1995] 2 FLR 915 Case
summary

Quantifying the beneficial interest where legal title is in joint names

A distinction is drawn between cases where the house was purchased in

one name and those where the house was purchased in joint names: Stack
v Dowden [2007]

Proprietary estoppel

Proprietary estoppel is a legal claim, especially connected to English

land law, which may arise in relation to rights to use the property of the
owner, and may even be effective in connection with disputed transfers of
ownership. Proprietary estoppel transfers rights if,

• someone is given a clear assurance that they will acquire a right over
property,
• they reasonably rely on the assurance, and,
• they act substantially to their detriment on the strength of the
assurance
• it would be unconscionable to go back on the assurance

If these elements of assurance, reliance and detriment, and

unconscionability are present, the usual remedy will be that the property
will be transferred to the claimant, if the court views the reliance to
warrant a claim in all the circumstances Taylors Fashion Ltd v Liverpool
Victoria Trustees [1982]

Assurance can be express (Gillet v Holt) or implied (Shaw v Applegate).

Assurance must be clear and unambiguous and must be related to the
property. Assurance obtained from dishonesty will be invalid. Murphy v
Rayner [2011]

The claimant must show that they had relied on the assurance. This is
generally shown through changing their conduct. Attorney Genereal of
Hong Kong v Humphrey's Estate [1987]
The assurance need not be the only reason for acting to their detriment:
Evans v HSBC Trust [2005] WTLR 1289

In most instances it is relatively easy to establish reliance and the courts

have come close to adopting a presumption of reliance where there exists a
representation: Greasley v Cooke [1980]

However, despite the relative ease of establishing reliance, where there has
been no causal connection between the change of conduct and the
assurance the courts have found that there is no reliance: Coombes v Smith
[1986]

3. Detriment or change of position

The claimant must act to their detriment or significantly change their

position: (Gillet)

Examples of detriment or change of position:

Expenditure of money to improve the land: Voyce v Voyce (1991)

Work undertaken to improve the land: Inwards v Baker [1965]
The claimant improves their own land; Rochdale Canal Co v King (1853)
The claimant does not seek alternative employment: Gillet v Holt [2000]

Overlap between Constructive Trust and Proprietary estoppel

This essay will explain the relationship between common intention

constructive trusts and proprietary estoppels

Firstly, it is important to provide a definition of both these terms.

Constructive trusts “at its simplest describes the circumstances in which
property is subjected to a trust by operation of law.” (Paragon Finance V
DB Thackerer) [1999] stating if it can be unreasonable for the owner of a
property to declare his beneficial interest, constructive trust will arise by
law.

Constructive trusts do not need to be in writing as they are exempted from

the operation of Law Property Act 1925 s 53(1) (b), by s 53(2). Mere
denial of an informal arrangement or understanding is of itself generally
insufficient, since equity will not assist a volunteer. Either the owner must
be unjustly enriched or the claimant must have acted to their detriment.

Proprietary estoppels can be used as a defence rather than a remedy as it is

another method whereby a person may receive the equitable interest that
they deserve without the appropriate formalities. Proprietary estoppel
comprises three main elements. Firstly, the owner of the land assures the
claimant that he will have some rights over the property, secondly, the
claimant must have had belief that he would receive interest in the
property and lastly the claimant acted to his detriment. This detriment has
to be substantial, authority from Gillet v Holt [2000].

There are raised questions concerning the similarities between the

doctrines, which will now be considered.

Both rely upon a promise which has been relied upon and a detriment due
to the reliance of the promise. Authority from Grant v Edwards [1986]
which proved that both depend upon shared characteristics, assurance,
reliance and detriment. Also in this case, Browne-Wilkinson VC suggested
that proprietary estoppels might provide an alternative route for claiming
an interest in the home, to that of the constructive trust. The assurance
must be made by the person against whom the estoppels are claimed – that
will usually be the owner of the freehold or leasehold estate in the land.
Per Lloyds Bank Plc v Carrick [1996] attempts to stop the holder of an
adverse encumbrance (e.g. a mortgagee) from asserting their rights (e.g. to
possession) have been rejected where the claimant has acted to their
detriment as a result of a common intention or mistaken belief that was
neither encouraged nor consented by the third party.

Detriment will usually be financial, (i.e. contributions to the acquisition or

improvement of the land), but it may also be personal, involving, for
instance, working without payment or giving up an independent life style.
Reliance, being the link between the assurance and the detriment can be
difficult to pin down, particularly where the detriment is personal. The
claimant must have acted to their detriment because of the owner’s
assurances and not for any other reason. For instance, that reason may be
personal attachment. In Greasley v Cooke [1980], suggestions were made,
although not proved, that Mrs Cooke acted to her detriment because of the
personal relationships she had within the family. Alternatively, the reason
may arise because of the existence of some other legal right. In Lloyds
Bank Plc v Carrick [1996], Mrs Carrick’s claim to an interest by estoppels
was rejected because as a buyer under an enforceable contract she held
under a bare trust and had acted to her detriment in that capacity.

According to George Rowell’s article, “both doctrines require some

combination of D’s words, actions and omissions to give ride, on an
objective view, to a common intention for D to give C an interest in his
property; require C to have relied upon that common intention to his
detriment; and result in C being awarded a beneficial interest in D’s
property. Thus, superficially at least constructive trusts can usually
supplant proprietary estoppels in relation to expectations of future interests
in property.”

Constructive trust and proprietary estoppels are ways of enforcing a

promise made by a landowner to a claimant being informal. If a person
wishes to have an interest in land, without having the specific formalities
i.e a deed or by writing, the two doctrines can enforce this whilst it being
an exception to the formalities required in regards to land transactions.

There are similarities between the two equitable doctrines which have just
been examined. On occasions the courts have not made it clear upon which
doctrine they have relied in reaching their decision. For instance, in
Gissing v Gissing [1971] when considering implied trusts Lord Diplock
thought it was “unnecessary for the present purposes to distinguish
between these …classes of trust” although now there are signs that the
courts are more aware of the importance of the distinctions between the
two doctrines.

To an extent, both doctrines are similar, however the significant

differences between them will now be looked at.

Intention, detriment and remedy are the three sections which cause
differences to arise between proprietary estoppels and constructive trusts.

A resulting trust is based upon the presumed intention that arises where a
person provides funds for the purchase of property. A constructive trust is
founded upon a common intention that can either be expressed or inferred
but cannot be based upon an intention that the parties never in fact had.
Estoppels may be claimed where there has been either a representation or
acquiescence that an interest in property is to arise. Certainly a
representation could equally be interpreted as leading to an express
common intention. In a constructive trust, once a common intention has
been found between the parties, they will now be entitled to the intended
property. A comparison can be seen with proprietary estoppels whereby it
is for the court to resolve and to decide which remedy is the most
appropriate for the case, taking into account “the minimum equity to do
justice,” which was an important statement made in Crabb v Arun DC
[1975].

There is no separate requirement for detriment in the case of a resulting

trust – the provision of funds by itself gives rise to the presumption. In a
similar way there is a close, if not invisible link, between an inferred
common intention and the detriment where a constructive trust is based
upon financial contribution. The distinction is that a resulting trust is based
upon a presumed intention at the time of acquisition but a constructive
trust can arise afterwards. In the case of both a constructive trust based
upon an express intention and estoppels there may be a more questionable
link between intention and detriment. It is thus perhaps not surprising that
there is a broader view of what is acceptable detriment in these situations.
For the remedy, the clearest distinctions lie in what result will flow from
each of the doctrines.

Gillet v Holt [2001] was a case which clearly showed the distinction
between the two doctrines and its importance when a defendant has
already discarded the property. When there is a claim regarding
proprietary estoppels, the court will look back and will take everything
into consideration when deciding what interest to give. Only then can an
interest in the property be definite. Nevertheless, constructive trust arises
by the operation of law, which can be recognised by the court. Proprietary
estoppels usually can be seen as more beneficial to a claimant when a
testator disposed of his personal assets e.g. home during his lifetime.
Contrast this with constructive trust, whereby it is more likely to be gainful
where one party still has possession of and is a resident in the property.