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CONSTRUCTIVE TRUST

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CONSTRUCTIVE TRUST

Any instances of Constructive Trust

Strangers As Constructive Trustee

1) Fiduciary2) Mutual Will3) Vendor of Land4) Conveyance By Fraud5) Acquisition By Killing6) New Model.

1) Knowing Receipt andDealing (Recipient Liability)2) Knowing Assistance(Accessory Liability)

LEARNING OUTCOMES: Students will be able to know

WHAT

HOW

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What is Constructive Trust

• It is a trust implied by law due to occurrence of specific event

• Court will recognize beneficiary’s pre-existing proprietary interest in the property

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Perceptions on Constructive Trust• English Law : Equity will interfere to

create relationship between parties using trust principles

• Canada : closely with the principle of unjust enrichment

• Australia : unconscionable conduct• New Zealand : reasonable expectation• Malaysia: a remedial device- devise by

equity to justify its intervention as against accountable person; to prevent any unfairness or injustice.

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INTRODUCTION

• Nobody create it• It comes into being on its

own by operation of law• It is not the produce of

implied intention.• It is the circumstances in

which property is subjected to a trust by operation of law.

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Nature and Scope of Constructive trust

a) Undefined and Vagueb) A wide variety of

situations• Based on cases,

constructive trust may arise under certain circumstances.

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CARL ZEIS STIFTING V HERBERT SMITH (1969) 2 CH 276

Lord Elmond Davis:• “English law provides no clear and all

embracing definition of Constructive Trust. Its boundaries have been left perhaps deliberately vague so as not to restrict the court by technicality in deciding what justice of a particular case may demand.”

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Types

1)Institutional Constructive Trust- Ct will declare the existence of such

a trust in the past.2) Remedial Constructive Trust.- No prior existence of trust- Main consideration : assets in the

hand of defendants and he is obliged to hold it for the benefit of others

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Other Classsification of Constructive Trust

Institutional Remedial

1) Breach of Fiduciary Duty2) Recipient Liability3) Accessory Liability4) Agreement to Dispose ofProperty5) Agreement to CreateSecret Trust 6) Agreement For MutualWill

1) Acquisition By Killing2) Co-habitees

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Difference between Constructive Trustee and

Ordinary Trustee

- Duty is less onerous- No obligation to invest- No obligation to observe

the usual duty of diligent (exacta diligentia)

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BANK BUMIPUTRA MALAYSIA BHD V. MOHAMED SALLEH [2000] 2 CLJ 13

• Gopal Sri Ram SCA COURT OF APPEAL, KUALA LUMPUR

• It is quite true that Courts of Equity have been careful not to permit a litigant from relying on the concept of constructive trust willy-nilly. Decisions of the English Courts show that the device of a constructive trust is not to be readily inferred in the absence of a clear intention to create a trust.

• (See Green v. Russell [1959] 3 WLR 17; Re: Schebsman [1944] Ch. 83.)

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a) Unauthorised Profit by A trustee Of Fiduciary• Refers to profits made by a person

in a fiduciary relationship• A person in a fiduciary

relationship/position may not use his position to gain benefit for himself.

• He must not put himself in a position where his interest and duty might conflict.

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Continue

• Debarred from keeping or taking a personal advantage which directly or indirectly arise out of his fiduciary/quasi fiduciary.

• Eg: trustee, personal representative, tenants for life, agents.

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• A fiduciary will also be liable to account For any payments that he may received as a result of his position.

• Such payments is known as secret profits.

• It has been established that a fiduciary cannot retain the profit which he received from secret profits UNLESS such retention is either authorised in advance or subsequently ratified by the principal with full knowledge of all relevant facts.

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READING v A.G (1951) A.C 507

• Reading is a Sergeant in the British Army was posted to Cairo. He involved in undesirable elements.

• He was given a bribe for sitting in a lorry which bought smuggle things – purpose when the Cairo security’s British army in the lorry, they will let the lorry go.

• He was caught and the British authorities seized the fund which he received. He claimed the sum.

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• COA : Assumed a fiduciary relationship is necessary; such relationship arose from the use by the suppliant of his uniform and the opportunities attached to it.

• Although the use if the concept of fiduciary r/ship was in a very loose sense, the retention of money was justifiable since it was held as trust money.

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Circumstances of fiduciary relationship; Asquith LJ

• A) the plaintiff entrusts to the defendant property . . . and relies on the defendant to deal with such property for the benefit of the plaintiff or purposes authorised by him and not otherwise, and

• B) whenever the plaintiff entrusts to the defendant a job to be performed . . and relies on the defendant to procure for the plaintiff the best term available.

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LISTER V STUBBS (1890) 45 Ch. D 1

• Plaintiff employed defendant as a purchasing agent but defendant gave orders to a third party in return for a commission.

• Plaintiff would like to recover the commission. On the basis that the defendant was a constructive trustee of the money.

• COA: declined to grant the order. The only obligation of the defendant was to pay over the sums received to the plaintiff.

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BOARDMAN V PHIPPS (1967) 2 A.C 67

• The trustee was a minority shareholder in a private company which was not effectively managed.

• Boardman acted as a solicitor to the trust. He and one of the beneficiary bought the necessary shares themselves and reorganised the company and all this was done in good faith and with the object of enhancing the trust holdings.

• Both the personal and the trust holding increased in value.

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• Held: Boardman was a constructive trustee of the profit made on his personal shareholding.

• The opportunity to make the profit arose out of his fiduciary relationship with the trust.

• Compensation was ordered from the trust in recognition of the work and skill involved in the reorganisation.

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b) MUTUAL WILLS• This is when 2 persons (usually

husband and wife) may agree that on the death of either one of them, the property shall be enjoyed by survivor and after his/her death by nominated beneficiary.

• Mutual will be effective in this circumstances if survivor is given a life interest or absolute interest with no will at all.

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QUERE

• To what extent such an agreement controls the devolution of their property?

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Agreement is very importanta) An agreement to make wills and not to

revoke them between parties must be proved.

b) Agreement must indicate:- the wills are to be mutually binding- Evidence must be clear and may be extrinsic- Agreement must amount to clear contract

at law- Conduct of parties may be inferred

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CASES

• RE OLDHAM [1925] Ch 75• H & W made a mutual will in similar

form. Each spouse left his/her property to ors absolutely with the same provisions in the event of the other predeceasing.

• No agreement that this should be irrevocable.

• H died, W remarried and made a will different from the earlier one.

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• Ct : upheld the second will• There is no evidence that in an

agreement that the trust in mutual will should in all circumstances be irrevocable.

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RE CLEAVER [1981] 1 WLR 939

• H & W married in 1967 and H had 3 children. They made a will in favour of one another and in default to their three children.

• 1974: each of them reduced the share of one daughter ( Martha) to life interest

• H died and W made new will consistent with the earlier but enlarging Martha’s life interest to absolute interest.

• Before she died left her residue to Martha and not to the other two.

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• Held : W’s executor was holding the estate on trust and W was under the obligation to leave the property to all 3 children

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c) VENDORS OF LAND

• When vendor and a purchaser enter into a specifically enforceable contract for the sale of land equity looks upon the vendor as a constructive trustee holding the property for the purchaser who is regarded in equity as the owner.

• The availability of remedy known as SP means that the purchaser is already an owner

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SHAW V FOSTER (1872) LR 321

• Lord Cairns : “The vendor was trustee of the property for the purchaser; the purchaser was the real beneficial owner in the eye of a Court of Equity of the property subject only to this observation, that the vendor, whom I have called a trustee, was not merely a dormant trustee, he was a trustee having a personal and substantial interest in the property, a right to protect that interest and an active right to assert that interest if anything should be done in derogation of it.

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• The relation therefore, of trustee and cestui que trust subsisted subject to paramount right of vendor and trustee to protect his own interest as vendor of their property”

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LYSAGHT V EDWARDS [1876] 3 Ch 499 at 507

• Jessel MR : “ the moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold and the beneficial ownership passes to the beneficiary.”

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SIAU PHIN FATT & BROTHERS SDN BHD V. THIEN KIM FAH & ANOR. & A THIRD PARTY[2000] 1 LNS 21

• The said Land is registered in the name of the Plaintiff.

• The Plaintiff did send a notice to the Defendants to vacate the said land

• Hence the primary issue is therefore whether there is any basis for the Defendants to remain on the said Land.

• The Defendants justify their stay on the said Land on an existence of constructive trust as it is their claim that the said Land as well as the other piece in the names of the other two siblings were bought by the mother.

• Since it is the Defendants that are raising such matters the burden is therefore upon them to prove those assertions.

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Wong Siew Choong Sdn Bhd v Anvest Corporation Sdn Bhd [2002] 3 AMR 2554Abd Kadir bin Sulaiman JCA;• “…the appellant vendor becomes in equity

the trustee for the respondent purchaser of the said land sold, and the beneficial ownership passes to the purchaser subject to appellant’s right to the purchase money, a charge or lien on the said land for the security of the purchase money and a right to retain possession of the said land until the purchaser money is paid by the respondent.

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d) CONVEYANCE BY FRAUD

• Where property has been obtained by the fraud of the defendant, he may be compelled to hold it as a constructive trustee

• Eg: a will is fraudulently revoked, the testator is fraudulently prevented from making a will or fraudulently induced to leave property to legatee or other person.

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e) ACQUSITION BY KILLING.

• Where a beneficiary kills the testator or next of kind kills an intestate, the murderer will be prevented form benefiting from his crime.

• A rule of public policy• Killing may be effected by any means

from murder to accident. An exception to manslaughter

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RE DWS (deceased) [2000] 3 WLR 1910

• X murdered his parents, who died intestate and had no other children. X’s only child, Y claimed the property of his parents.

• Ct ; Y’s claim failed. The public policy rule did not require the court to treat the murderer as having predeceased the victim.

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f) CONSTRUCTIVE TRUST OF A NEW MODEL : JUSTICE AND GOOD CONSCIENCE

• Introduced by Lord Denning.• CT may be imposed regardless of

established rule, in order to reach the result required by equity, justice and good conscience

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HUSSEY V PALMER [1972] 1 WLR 1286• “ It is a trust imposed by law

wherever justice and good conscience require it. It is a liberal process, founded on large principles of equity.”

• Usually been use in principles of property law involving unmarried couple.

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EVES V EVES [1975] 1 WLR 1338

• “In strict law she has no claim upon him whatever. She is not his wife. He is not bound to provide a roof over her head. He can turn her into the street…. A few years ago even equity would not have helped her. But things are altered now…”

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• “It would be “most inequitable for him to deny her any share in the house. The law will impute or impose constructive trust by which he was to hold it in trust for both of them.”

• “Equity is not past the age of child bearing. One of her latest progeny is a constructive trust of a new model. Lord Diplock brought it into the world and we have nourished it.”

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Criticisim: In England and other jurisdiction as well.• NZ Supreme Court Mohan J:• A supposed rule of equity which is not only

vague in its outline but which must disqualify itself from acceptance as a valid principle of jurisprudence by its total uncertainty of application and result. It cannot be sufficient to say that wide and varying notions of fairness and conscience shall be the legal determinant. No stable system of jurisprudence would permit a litigant’s claim to justice to be considered to the formless void of individual moral opinion.

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Muschinski v Dodds (1985) 160 CLR 583Deane J:

• The law of Australia had no place for notion of the new model constructive trust.

• “Under the law of this country. . . under the present law of England . . .as, I venture to think, proprietary rights fall to be governed by principles of law and not by some mix of judicial discretion . . . subjective views about which party ought to win . . and the formless void of individual moral opinion.”

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Malaysian Cases

• LIEW CHOY HUNG V. FORK KIAN SENG [2000] 1 CLJ 369

• PET FAR EASTERN (M) SDN BHD V. TAY YOUNG HUAT & ORS[1999] 2 CLJ 886