CONSTRUCTIVE TRUST GENERAL ESSAY

The term "constructive trust" lacks a precise legal definition but as per Lord
Brown's statement in the Westdeutsche Landesbank case the law will get to
impose a trust which will be a constructive trust on a trustee who engages in
conduct which is not ethical. It can be inferred that the formation of a
constructive trust is not dependent upon any specific event but rather is a
consequence of legal enforcement. There are two distinct classifications of
constructive trusts in existence namely institutional constructive trusts and
remedial constructive trusts. In certain jurisdictions such as New Zealand and
Canada, remedial constructive trusts may be established but in England these
trusts are referred to as institutional constructive trusts due to the courts
consistent recognition of the claimant's prior property interest in the event of a
specific occurrence.
The creation of a constructive trust does not require the parties involved to
possess any specific intentions as the trust is established through the
operation of the law or by the court. Constructive trusts may be formed in
various scenarios however it is commonly the breach of a fiduciary duty which
gives initial attention to us. A fiduciary is an individual who assumes the
responsibility of acting in the best interest of another person with regards to
their property and when the beneficiary is the principal then the trustee will be
serving as their fiduciary. Because of the strict legal regulations and the
fiduciary liability which he might have for any gains the fiduciary can be a
subject to the formation of a constructive trust when there are any illegal
profits. It is really important that a fiduciary has no conflicts of interest with
regards to his or her beliefs as can be seen in the case of Keech vs Sandford
where the trustee had renewed the lease without consent from the beneficiary
and so was forced to retain possession of beneficiary’s lease.
The Bradman versus Phillips case has the required potential in order to set a
legal precedent for this concept and where a fiduciary uses any privileged
information for his own personal gain then it may result in the formation of a
constructive trust. In the case the fiduciary was a legal practitioner who had
used privileged information which was given to him relating to the company to
so that he can sale certain company assets to generate profits of almost 75000
UK pounds. The House of Lords determined that the attorney had breached his
fiduciary duty towards the beneficiary, resulting in his classification as a
constructive trustee and subsequent accountability for any profits he had
acquired. The act of receiving a bribe can be considered as an instance of
violating the fiduciary duty by a fiduciary. A-G The case of Hong Kong versus
Reid holds significant importance in the context of the discussed topic, as it
elucidates the modus operandi of Reid's payment collection and subsequent
investment in real estate using the collected funds. The reversal of the
judgement in Lister versus Stubbs was based on the court's determination that
Reid's conduct lacked good faith and involved the acceptance of a bribe. The
court rendered a decision that a constructive trust shall be established against
Reid, due to the influence of the aforementioned two factors. Subsequently, the
responsibility of holding the property in constructive trust was bestowed upon
Reid.
Numerous critics of constructive trusts argue that it would be more desirable
for the judiciary to restrict personal claims against fiduciaries solely to
instances where the fiduciaries have engaged in misconduct, and that the
court should not acknowledge the propriety right. The aforementioned
argument is substantiated by the observation that allegations made against
fiduciaries on a personal level are infrequent. The defence posits that the
recognition of a proprietary right provides the claimant with more robust
safeguards compared to insolvency creditors, who are restricted to pursuing
personal claims. The second contention posited against the establishment of a
constructive trust arising from a breach of fiduciary duty pertains to the
rationale behind conferring exclusive significance to fiduciary obligation as the
only conduct that can give rise to the formation of a constructive trust. There
may be instances where individuals question the absence of a constructive
trust arising from other forms of misconduct, such as the violation of tort laws,
between the parties concerned. The court in the case of Halifax versus Thomas
opined that the commission of the tort of deceit does not give rise to a
constructive trust. Similarly, in the case of Re Polly Peck, the court held that
the mere act of trespassing on land does not establish a constructive trust
against the defendant. Both of these judgements are available in the case
synopses. These particular occurrences lend credence to the opposing
perspective.
Constructive trusts can be observed in situations where property rights are
violated due to criminal actions, with theft being the most prevalent example.
The case of Westdeutsche Landesbank versus Islington, wherein a thief was
granted constructive trust, establishes a precedent that holds significant
authority in this particular instance. The decision was rendered on the premise
that the principles of equity would necessitate the imposition of a constructive
trust upon the accused, should he acquire assets through fraudulent means.
Constructive trusts may arise due to unjust enrichment, which typically
involves one party unintentionally making payments that should have been
made by the other party. The imposition of a constructive trust was observed
by the courts in Stack versus Dowden and Bailey versus Angroves, upon the
realization that payments were erroneously made. Chambers and Birks
proposed that trusts could arise from instances of unfair enrichment, such as
improper payments, thereby calling into question the conventional
understanding of trusts. Notwithstanding, the aforementioned instances serve
to demonstrate that constructive trusts may arise even in cases of inadvertent
payments, thereby supporting their assertion. The court established a
constructive trust in the matter of Chase versus Manhattan Bank due to an
erroneous payment rendered to the bank. There were individuals who
expressed dissent towards this determination, contending that it should have
been succeeded by the formation of a trust in this specific circumstance. The
ethical implications of permitting constructive trusts for instances of unjust
enrichment are a topic of frequent scholarly discourse. One could argue that
the current state of the law is not entirely lucid. However, it is preferable for
resulting trusts to be invoked in cases of unjust enrichment due to their
restitutionary nature.
The following discourse pertains to the concept of restorative constructive
trust, a type of trust that has predominantly originated in Canada (Pettkus
versus Becker) and New Zealand. In contrast to the censure occasionally
directed towards constructive trusts, it is important to note that a restorative
constructive trust and an institutional constructive trust differ fundamentally
in that the former does not acknowledge any propriety rights as recognised by
the court. This represents a fundamental distinction between the two
categories of trusts. As previously stated, the English courts' endorsement of
institutional constructive trusts is solely attributed to their profound respect
for proprietary rights. Several instances have illustrated the frequency at which
courts have dismissed restorative constructive trusts. Peter Gibson expressed
his dissent towards the application of remedial constructive trust in the case of
Halifax Building Society v Thomas. Judge Millet ruled in the Lonrho plc versus
Fayed case that the implementation of corrective constructive trusts is
currently unnecessary, while acknowledging the admissibility of some flexibility
in their application.
The employment of remedial constructive trusts has not been recognized by
English courts mainly due to presence of uncertainty. The lack of
comprehensive understanding regarding the remedies associated with
constructive trusts is a primary factor contributing to courts' reluctance to
acknowledge remedial constructive trusts. Regrettably, Lord Denning's
endeavours to disseminate this notion in the English legal system proved
unproductive, as evidenced by the Grant v Edwards case.
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