Circumstantial Constructive Trusts

In our answer to the question we will be talking about circumstantial constructive trusts which
may arise in situation where there is no written agreement. In situations where there is a breach
of fiduciary duty or any other violation of a trust then in order to use a remedy circumstantial
trust are often created. The main aim of this remedy is that it takes the claimant back to his or her
pre contractual position and quashes the breach.
How constructive trusts are formed is solely attributed to the legal framework and as a result this
helps us resolve the important question that how these trusts are formed in law. In the case of
Carl Zeiss Stiftung vs Herbert Smith, the constructive trusts were not properly classified in
English law but this was a good strategy because it granted courts enough flexibility which
relieved them from following different strict formalities. In another case of FHR European
Investments vs Cedar it was identified there were certain circumstances which can help create a
constructive trust in law. Judicial discretion is very important if a constructive trusts needs to be
created although other legislative measures do exist. In common law the constructive trusts are
categorized as either remedial or circumstantial which is our main discussion today. If a person
engages in a fraudulent behavior and he knows what he is doing is wrong then in such a situation
we could see a creation of an institutional constructive trust.
In our answer we will be examining different ways through which constructive trusts can arise
despite so many debates surrounding it. One way through which a constructive trust can arise
when there is a violation of a legal obligation by one person which is known as a fiduciary duty.
A breach of a fiduciary duty will arise as a result of different fraudulent activities including
taking bribes or exploiting any information which is deemed confidential. The cases of boardman
vs phibbs and the case of AG v Guardian Newspaper are the two cases which have been shown
interest by the academics. In the case of Keech vs Sanford the concept of unauthorized profits
was determined and it was held that there would be a breach of a fiduciary duty if trustee has
obtained any unauthorized profits as a result of renewal of lease. in another case of regal vs
Gulliver it was held that people who are directors of their organizations are to be known as
fiduciaries and if they obtained any personal benefits without any authorization by using their
position then a constructive trust would be formed. The case related to this of IDC v Cooley
where a person who had a fiduciary position misappropriated the assets of the trust.
The case of lister vs stubbs is of importance which was overruled by the decision of the UKSC in
the case of FHR European investmentsvs Cedar LLC. After this case was overruled the courts
starting dismissing different claims of ownerships in those situation where there were allegations
of bribe on the trustee or where he had accepted a bribe. People have raised their concerns about
the applicability of the constructive trusts as it has a restricted scope in relation to other
misconducts for example where there is trespass on property as can be seen in the case of Re
Poly Peck or where there is fraud as can be seen in the case of Halifax vs Thomas. Many people
say that if the application of constructive trust is limited only to cases which involve breach of a
fiduciary duty and not any other misconducts then this is not fair.
The second scenario where a constructive trust can arise is in a situation where there is mistaken
payment. The main case which needs to be discussed here is of the chase manhattan bank v Israel
british bank where it was held that if funds were transferred to another person without any
intention then those funds must be retained in a form of constructive trust and the person who
has received those funds then has a fiduciary responsibility to transfer back the funds to the
initial proprietor. According to chambers it is important that resulting trusts are created when
there is a situation of any mistaken payment.
In the case of Foskett vs Mckeown the funds were intended for one purpose but they were used
for another purpose and in such a situation it was held that a constructive trust would arise which
would be in favor of the recipient. Lord millet said that here law of tracing can be used to
determine a lawful claim to a property but given the fact that the purpose of the law of tracing is
to identify the rightful owner of the property can suggest that the method may not be appropriate
to use.
It was the Australian case of Evans vs European bank where the legal concept of constructive
trusts was first established and it was in this case where the courts looked upon the acquisition of
a property which had been taken fraudulently. Contracts that demonstrate a significant degree of
enforceability possess the capacity to establish a constructive trust. The assertion has been
confirmed by various cases, including but not limited to Jerome v. Kelly, Lysaught v. Edwards,
Oughtred v. IRC, Neville vs Wilson, and Lysaught v. Edwards. The notion of equity renders this
methodology highly pertinent with respect to matters concerning personal concerns.
There is a debate surrounding the notion that constructive trusts are subject to a varied set of
regulations. Although the phenomenon has been widely documented, its underlying causes
continue to be a subject of debate. The phenomenon of trust establishment is currently observed,
yet the underlying reasons for this occurrence remain enigmatic. Previous attempts to bring them
together under a common goal have been unsuccessful and Professor Chambers shares the same
sentiment.