LAW OF TRUSTS (UK4083)

CONSTRUCTIVE TRUSTS

ESSENCE OF CONSTRUCTIVE TRUST (What?)

Term Constructive means: Inferred; Presumed from circumstances; Arising from the construing of facts;

ESSENCE OF CONSTRUCTIVE TRUSTS

Therefore

refers to

:Constructive Trusts means /

A trust which is imposed by the courts irrespective of the express or presumed intention of the parties. It is imposed by the courts based on the facts / circumstances surrounding each case in the interest of preventing and rectifying inequitable conduct.

EXAMPLE : Lee v. Sankey (1873)

X, a stranger, knowingly receives trust property, being aware that it has been transferred to him in breach of trust; X is considered as holding that property for the beneficiaries upon constructive trust.

In Carl Zeiss Stiftung v. Smith

English law has no clear-cut all embracing definition of the constructive trust Its boundaries have been left perhaps deliberately vague so as not to restrict the court by technicalities in deciding what justice of a particular case may require.

Hanbury and Martin

Constructive trust is a category of trust which is called into play where a court desires to impose a trust and no other suitable category exists.

MOST SIGNIFICANT ATTRIBUTE OF CONSTRUCTIVE TRUST

It arises by operation of law; It is imposed by court regardless of the intention of the parties.

CHARACTERISTICS OF CONSTRUCTIVE TRUST

It arises by operation of law; It does not depend on an express intention or presumed intention of the settlor; It depends on the conduct of the parties. Khor Kuek Jin v. Haji Yasin & Ors [1976] 2 MLJ 70 (followed principle laid down in Soar v. Ashwell [1893] Generally speaking, a person who is not the appointed trustee and whom it is sought to affect with a trust by reason of his conduct is not a trustee at all, although he may be liable as if he were; which is commonly expressed by saying that he is not an express but a constructive trustee.

CONSTRUCTIVE TRUST

FIDUCIARY AS CT

STRANGERS AS CT

WHO IS A FIDUCIARY? TRUSTEE DE SON TORT

KNOWING RECEIPT

KNOWING ASSISTANCE

FIDUCIARY AS A CONSTRUCTIVE TRUSTEE

Who is a Fiduciary? A person who is put into a position of trust / confidence / loyalty; E.g. trustee & beneficiary, director & co., agent & principal, lawyer & client.

FIDUCIARUY AS A CONSTRUCTIVE TRUSTEE

i.

ii.

iii.

Receives money to which he is not entitled; Enters into a transaction on his own behalf which he should have done on the principals behalf; Uses confidential information for his own end;

Receive money to which he is not entitled

Makes unauthorised payments to himself or accepts unauthorised payments out of his principals funds; Appropriates to himself payments received from third parties to which the principal is entitled. (Re Macadam)

Enters into a transaction on his own behalf which he should have done on principals behalf

A person will hold on constructive trust benefits he has received as a result of entering into transactions on his own behalf when it was his duty to enter into such transactions in his capacity as a fiduciary. Rule in Keech v. Sandford prevents a trustee from keeping for his own benefit a renewal of a lease which he was able to obtain for himself by reason of his being the trustee of the original lease.

Uses confidential information for his own ends

If a fiduciary uses confidential information obtained by virtue of the fiduciary relationship to obtain benefits for himself he will hold the benefits on a constructive trust - Boardman v. Phipps

STRANGERS AS CONSTRUCTIVE TRUSTEE

i. ii.

iii.

Trustee de son tort; Knowing Assistance / Accessory Liability; Knowing Receipt / Recipient Liability.

Trustee de son tort

A person who is not a trustee and has no authority from the 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 a constructive trustee [Mara v. Browne]

KNOWING ASSISTANCE / ACCESSORY LIABILITY

A stranger will be liable as a constructive trustee if he knowingly assists in a fraudulent and dishonest disposition of the trust property (Barnes v. Addy), (Soar v. Ashwell); Knowingly assist in fraudulent design not necessarily in receipt of trust property liable; What? Dishonest facilitation. Therefore the term knowing assistance is a misnomer. The accessory must himself be dishonest in his intention. [Royal Brunei Privy Council [1995] 3 All ER 97]

KNOWLEDGE
i.

ii.

Amounts to a finding of dishonesty if a person knowingly appropriate anothers property he will not escape a finding of dishonesty simply because he sees nothing wrong in his behaviour. Dishonesty not the same with negligence (duty of care) an accessory will not be liable merely for being negligent.

Example : Agip (Africa) Ltd. V. Jackson [1992] 4 All ER 385. If a person (though foolishly) did not suspect wrongdoing or having suspected it, had his suspicions allayed, however unreasonably, that is one thing. But if he did suspect wrongdoing yet failed to make inquiries because he did not want to know or because he regarded it as none of his business that is quite another. Such a conduct is dishonest, and those who are guilty of it cannot complain, they are treated as if they had actual knowledge.

It is the dishonesty of the accessory that matters, not the state of mind of the trustees. Eg : a situation where the accessory is liable but the trustee acted honestly. Eames v. Hickman a stranger forged a marriage certificate to induce trustees to distribute trust property to his illegitimate children. Dishonesty on the part of the trustee is not a prerequisite. Accessory liability separate and independent from liability of the trustee. What is the standard for dishonesty? Dishonesty is to be judged based on ordinary standard (of man) Royal Brunei.

KNOWING RECEIPT / RECIPIENT LIABILITY

a.

A stranger obtains property from a trustee or other fiduciary knowing at the outset that it was transferred to him in breach of the trust / fiduciarys duties;

b.

A stranger receives trust property without notice of the trust, but having become aware of the trust fails to return it to the beneficiaries;

c.

A stranger receives property which he knows is subject to a trust without being in breach of trust but later deals with it in a manner which is inconsistent with the trust.

When an intermeddling stranger actually receives the trust property into his hands, he should be liable as against the beneficiary. Re Montagus settlement Trust [1987] Ch 264. Claim against intermeddling stranger may be either a claim for compensation for loss to the claimant, or a claim to profits made by the intermeddler, regardless of any loss to the claimant whose property has been intermeddled with, or indeed both.