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Module 10 · Constructive trusts

What this module covers and why it matters. This module covers the constructive trust, the trust imposed by law where it would be unconscionable for the legal owner to keep the whole beneficial interest. It matters on two fronts. It is the vehicle for the contributions a resulting trust cannot reach, above all the non-financial effort partners pour into a shared home, and it is the proprietary remedy that lets a plaintiff claim a specific asset such as a bribe ahead of the general creditors in an insolvency. It sits directly after Module 9, and the two work as a pair: direct financial contributions run as a resulting trust and everything else runs here.

How to use this guide. The attack plan below is a scaffold you can carry into a problem. It runs family assets first and fiduciary gains second, which is the order the facts usually invite. The comparison table sets the two family constructive trusts side by side and is the frame for the shared-home part of any answer. Read the guide once for the map and then revise from the table and the closing examiner section.

Cases at a glance

The attack plan

Use this order whenever a constructive trust is in play.

Having set out the plan we take the family trusts first and the fiduciary gains second.

Family assets: the two constructive trusts

What this section covers and why it matters. Most constructive trust problems are shared-home disputes between separating partners, and two distinct trusts can answer them. They can be run together on one set of facts, so know both and plead both where the facts allow.

The threshold move is characterisation. A resulting trust responds to direct financial contributions and to those alone, so renovation, labour and homemaking cannot found one. Those contributions belong here. Where a fact pattern turns on non-financial effort you must move it to a constructive trust rather than force it into the resulting trust arithmetic of Module 9.

The first trust is built on agreement. There must be an actual common intention that the claimant is to have a beneficial interest, and the claimant must have acted on that intention to their detriment. The intention has to be genuine and mutual. A court cannot invent the intention the parties never formed simply because fairness might have called for it.

The second trust needs no agreement at all. The joint endeavour constructive trust arises where the parties pooled their efforts or resources in a joint endeavour, that endeavour failed without either party being to blame for the failure, and it would then be unconscionable for one of them to keep a benefit the other contributed for the endeavour. This is the trust for the couple who combined money and labour to build a life together and then separated.

There is a limit worth marking. In Bryson v Bryant the ordinary domestic contributions of a long marriage did not by themselves generate a joint endeavour trust, so a claimant cannot rely on the general give and take of a relationship. You must identify the specific pooled contribution and the specific failure of the endeavour. The academic critique that the doctrine leans too heavily on an under-theorised idea of unconscionability, associated with Liew, is essay material rather than problem material.

Institutional or remedial

What this section covers and why it matters. Once a constructive trust is established you must classify it, because the classification decides the fight that usually matters most, the contest with a trustee in bankruptcy. The question is when the trust took effect.

An institutional constructive trust exists from the moment the equity arose. The court merely recognises it, so it binds third parties from that earlier date and the beneficiary's interest predates the creditors. A remedial constructive trust is imposed by the court as a remedy, and the court has a discretion over the date it takes effect. Where creditors have intervened in the meantime the court may decline to backdate the trust, protecting them.

The common intention trust is treated as institutional. The joint endeavour trust carries the remedial character Deane J described in Muschinski, with the court retaining a discretion as to date to protect third parties. In an insolvency this is often the decisive point. Establish that a constructive trust exists, then argue whether it binds from when the equity arose or only from the date the court fixes.

Fiduciary gains: bribes and secret commissions

What this section covers and why it matters. The second half of the module leaves the family home for the boardroom. Where a fiduciary takes a bribe or a secret commission, is that gain merely a debt they owe, or is it held on trust so the principal can claim the very asset? The answer decides who wins if the fiduciary is insolvent.

The history is a swing. Lister v Stubbs held that a bribe created only a personal liability to account, so the principal ranked as an ordinary creditor. Attorney-General for Hong Kong v Reid and later FHR European Ventures reversed course and imposed a constructive trust over the bribe and anything bought with it, giving the principal a proprietary claim.

Australia lands between the two. Under Grimaldi a constructive trust is available over a bribe or secret commission, but it is not automatic. The relief is discretionary, so the court may impose the trust or grant a lesser personal remedy according to the equities and the position of third parties. That discretion is why the bribe question is always set in an insolvency frame. The constructive trust reaches the specific asset ahead of the general creditors, so whether the court exercises its discretion to grant it is what the whole answer turns on.

Common intention or joint endeavour

This table sets the two family constructive trusts side by side. Use it to pick the right trust, or to run both, and to remember which character each one carries into the insolvency contest.

How the examiners test this

Family constructive trusts appear in most years, always alongside the resulting trust analysis and inside the bankruptcy frame. The reliable division of labour is to run the resulting trust for direct financial contributions from Module 9 and the constructive trust for everything else, and then always to resolve whether the trust is institutional or remedial. That last step is not optional, because it decides the creditor contest the problem is really about.

The bribe and secret commission constructive trust is a rising theme and is climbing year on year. It is always framed around insolvency and remedial discretion, so state the Grimaldi position clearly and explain that the constructive trust reaches the asset ahead of the general creditors while remaining discretionary. Watch the Bryson v Bryant limit on the family side, where ordinary domestic give and take is not enough and you must point to a specific pooled contribution and a specific failure.

Close every answer on the proprietary consequence. A constructive trust reaches the specific asset and defeats the general creditors, and it then feeds the tracing analysis and any third-party claim in the later modules. State the interest, fix its scope, and say what it means for the creditors.

Consolidation. The constructive trust catches what the resulting trust cannot. Characterise the claim first and send non-financial contributions here. On the family side run common intention and joint endeavour, together where the facts allow, and mind the Bryson limit. On the fiduciary side run Grimaldi for bribes and secret commissions. Classify every trust as institutional or remedial, because that is what decides the fight with the trustee in bankruptcy, and finish on the proprietary consequence.

Take it to the practice bank

This module is drilled in the Equity and Trusts practice bank. Every problem there carries a realistic Pass answer, an H1 model answer, and an examiner's comment explaining the decisive fact and where the marks are lost.