Constructive Trusts Cases

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Attorney General of Hong Kong v Reid [1994] UKPC 36

Facts: Mr Reid was the Acting Director of Public Prosecution for Hong Kong. He took bribes to stop prosecution of criminals and used the money to buy some land in New Zealan. The claimant wanted a proprietary remedy to follow the property

Held: The Privy Council overruled Lister v Stubbs and held that a proprietary constructive trust is imposed as soon as the bribe is accepted by its recipient – this means the employer is entitled in equity to any profit generated from the bribe received

Banner Homes v Luff Developments [2000] Ch 372

Facts: The defendant and claimant negotiated to form a joint venture to exploit some land. The defendant continued negotiating while privately reserving his desire to enter the joint venture, but decided it would be best to keep the claimant on board until a better prospect emerged.

Held: It was held that there was a constructive trust as there was sufficient agreement that it was the parties’ common intention to enter a joint venture

Bannister v Bannister [1948] 2 All ER 133

Facts: Bannister inherited 2 cottages when her husband died, including the one where they lived. She transferred them to her brother in law for under market value. They orally agreed she would remain in the property rent free for life. He subsequently tried to kick her out

Held: The fraud consists of denying the trust, so a proprietary right was given to Bannister under a constructive trust

Chase Manhattan v Israel-British Bank [1981] Ch 105

Facts: Money was transferred to the defendant (i.e. the bank). By mistake a second transfer of money was made to the bank. Before the mistake was identified and before the money was repaid, the defendant went into insolvency

Held: It was held there was a trust over the money so Chase Manhattan was a secured creditor in insolvency

Crabb v Arun District Council [1976] Ch 179

Facts: The claimant was assured the local council would built a right of way to his land. The claimant relied on this assurance to sell part of his land leaving it landlocked. The council subsequently did not build the right of way and demanded £3000 for it to be build

Held: The claimant succeeded on a claim of proprietary estoppel

  • Lord Denning commented that proprietary estoppel “can provide a cause of action” as it did here

FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45

Facts: FHR purchased shares from Monte Carlo Hotel for €211.5m. Cedar acted as a FHR’s agent (so there was a fiduciary relationship) in negotiating the purchase. Cedar had also agreed with the vendor they would get a €10m fee following a successful transaction of the shares, which was later received. FHR later claimed for recovery of €10m from Cedar as they owed a fiduciary duty meaning they could not make a secret commission; accordingly, FHR claimed all profits were held on constructive trust

Held: The Supreme Court held there was a constructive trust on the fee for FHR

  • Lord Neuberger goes on to dismiss the remedial approach → this case was very formulaic and applied an institutional approach
  • “The remedial constructive trust represents an unnecessary weapon in the judicary’s armoury” Lord Neuberger (extra-judicially)

Gissing v Gissing [1971] AC 886

Facts: This set out the test, which remains good law, that the common intention of the parties as to how the property should be held is the determinative factor. In the case, a house was bought in the husband’s name and he was the mortgagor. The wife made some contribution to the upkeep of the house.

Held: The House of Lords found she had no proprietary interest in the house, however, they said it was possible a constructive trust could be found where there was a common intention that the ben interest be shared, either equally or otherwise

Keech v Sandford (1726) EWHC J76

Facts: Family property that was on lease was left on trust for an infant. Sandford was the trustee of the property, but the lease subsequently expired and the landlord refused to renew the lease. So Sandford renewed it in his own right as he saw it as a good investment. When the infant (Keech) grew up he sued.

Held: The court held tat the property was held on constructive trust for Keech → it is unconscionable for Sanford to benefit here as he would be taking an unauthorised personal benefit

Lister v Stubbs (1890) LR 45 Ch D 1

Facts: The defendant was bribed to place certain orders with certain suppliers. The plaintiff (i.e. claimant) wanted to establish a proprietary claim to the profitable investments the defendant made on the bribes by arguing there is a constructive trust

Held: The Court of Appeal held that to allow this would offend property rules and therefore could not claim title to the property acquired by the bribes

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CONTENT

Lloyds Bank v Rosset [1991] UKHL 14

Facts: A husband and wife financed the purchase of a home by borrowing from the husband’s trust fund, and was registered in husband’s sole name. The wife claimed the beneficial interest on the basis of her contribution to decorating the home and supervising the builders who helped decorate it. She succeeded at first instance. But the case went to the court of appeal

Held: The Court of Appeal found the wife’s activities insufficient to infer a common intention that she should have an interest

  • “In this situation direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do." (Lord Bridge)
  • This is the currently applicable law

Pallant v Morgan [1953] Ch 43

Facts: The defendant and the plaintiff (i.e. claimant) owned adjacent land. Some woodland was for sale and the parties agreed that the defendant would bid for it for them both, with the exact proportions on which the land was to be held to be agreed later. The defendant succeeded but the parties were unable to agree how to divide the land.

Held: The judge did not make an order for specific performance, however, where property was obtained by one party as part of a joint enterprise, the property was held on constructive trust for both parties.

Reading v Attorney General [1951] UKHL 1

Facts: An army sargeant took a bribe and was used in a smuggling operation

Held: It was held, by doing this, he breached his fiduciary duty to the Crown. So the Crown could recover payments paid to him as a bribe → this certainly looks like a proprietary remedy was granted over the bribes (although this isn’t strictly speaking a constructive trust as the money had been seized by the Crown on the soldier’s conviction)

Re Cleaver [1981] 1 WLR

Facts: A couple made a will in each other’s favour absolutely, and in default to the husband's 3 children. In 1974 they reduced the share of 1 daughter, Martha, to a life interest. After the husband died the wife made a new will consistent with the earlier. She later left her residue to Martha and her new husband, and nothing to the other two children

Held: It was held, the wife's executors held the estate on trusts of the 1974 will as there was sufficient evidence of an agreement to make Mutual Wills from the conduct of the parties

Re Oldham [1925] Ch 75

Facts: A husband and wife made mutual wills in a similar form leaving property to the other absolutely. There was no evidence the arrangement should be irrevocable. After the husband died, the wife married again and made a new will

Held: The second will was upheld by the court → Astbury J said that the fact the two wills were identical does not necessarily make it a Mutual Will; it is necessary that there is an agreement and a long-term binding intention extending beyond death

Rochefoucauld v Boustead [1897] 1 Ch 196

Facts: Land was transferred to the defendant to hold on trust. This was not put in writing and the defendant mortgaged the land. The claimant sought a declaration of trust, but the defendant argued the trust was not enforceable due to lack of writing

Held: It was held that equity will not allow a statute to be an instrument of fraud and it would be unconscionable here for the defendant to keep the land (Lindley J)

Sinclair Investments v Versailles Trade Finance Ltd [2011] EWCA Civ 347

Facts: Versailles Trading group comprised companies set up by Cushnie which were intended to operate a fraudulent ponzi scheme. Through the money Cushnie made he bought a house in Kensington and he wanted to establish a proprietary constructive trust to the house. It was counterclaimed that there should be no proprietary constructive trust and it should be sold and the proceeds distributed in insolvency proceedings

Held: The Court of Appeal held there should be no constructive as to maximise assets available to unsecured creditors

  • The court of appeal made a distinction: a constructive trust will arise if a fiduciary misused trust property to make a personal profit, but will not arise if he misused his office to make a personal profit
  • Neuberger made some unconvincing arguments for not following Reid: 1) he said it was best to follow the very old court of appeal judgment, rather than the judgment of the House of Lords sitting 15 years previously in the privy council; 2) Neuberger says there is more support in favour of Lister v Stubbs than Reid, but this fails to account for the fact that most academics seek deliberately to take a contrarian point of view as to get published; 3) only convincing argument is that a constructive trust would mean assets could not be distributed to the other creditors
  • This finding does not mean that the taker of bribes, who has breached his fiduciary duty, can keep the money → There will be a duty to account, which is a personal remedy.
  • However, a personal remedy will be of no avail where the person concerned cannot meet it.

Stack v Dowden [2007] UKHL 17

Facts: The parties in this case bought a house and registered as joint tenants of the legal estate. When their relationship broke Mr Stack obtained a court order that the house be sold and the proceeds be divided equally. However, Mrs Dowden had provided more than 50% of the cost of acquiring the property and she appealed against this decision. The court of appeal held she was entitled to 65% share, and Mr Stack appealed to the House of Lords - he claimed the parties had been joint tenants of both the legal estate and the beneficial interest, and relied on the rule in Goodman v Gallant [1986] that severance of a beneficial joint tenancy produces a tenancy in common in equal shares

Held: The House of Lords held that the starting point of joint legal ownership is joint beneficial ownership, and the burden of proof is on the claiamant to rebut this presumption. Lady Hale emphasised it would only be in very unusual cases the court would find the parties intended their holding of the beneficial interest should not follow that of the legal title. The House of Lords held this was one of those unusual cases i.e. the parties did not intend to hold the beneficial interest as joint tenants – this was based on a number of factors, including contributions that were not direct to the purchase price (contrary to Lloyds Bank v Rosset)

Westdeutsche Landesbank v Islington [1996] UKHL 12

Held: Lord Browne-Wilkinson, said a constructive trust could not have arisen over the second payment in Chase Manhattan v Israel-British Bank [1981] until the bank was aware that the second transfer was a mistake (as you have to know you have property to be a constructive trustee of it). He says that the recipient’s conscience must have been affected, which cannot be so if you don't know you have the property by mistake

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