Australia: Constructive Trusts And Property Disputes

Last Updated: 19 November 2008
Article by Jenni Mole


Equity is a powerful tool in the hands of a party to a family property dispute. This paper will examine the circumstances in which the courts will find the existence of constructive trusts or other equitable rights, how they will enforce them, and the effectiveness of this route in meeting the client's requirements.


From the 1552 Book of Common Prayer:

"And the priest taking the ring shall deliver it unto the man, to put it upon the fourth finger of the woman's left hand. And the man taught by the priest, shall say,

'With this ring I thee wed:
With my body I thee worship,
And with all my worldly goods I thee endow.'"

From the Book of Common Prayer in use today:

"The giver places the ring on the ring-finger of the other's hand and says:
'[Name of other person], I give you this ring as a symbol of my vow,
and with all that I am, and all that I have, I honour you'"

We may be forgiven for thinking that, other than the wedding ring itself, the modern wife is no longer attributed the proprietary interests in the husband's worldly goods she may have been granted by his oath in the 16th century. But for a woman's incapacity to actually own property in 1552, a wife should have potentially (and quite rightly) been able to enforce the husband's promise in equity, she undoubtedly having acted to her detriment consequent to the promise by leading him, nervously, regretfully and pining for the miller's broad-chested and dashing son, to the matrimonial bed.

The modern wife, it seems, prefers not to be worshipped, certainly not by the body of her new husband anyway. Being honoured seems to be the preferred endowment. In addition, the modern wife has the capacity to own property herself, indeed perhaps more than her new husband, and thus the marital oaths now impress less upon the parties' worldly goods.

Stepping into the breech, or perhaps taking over, is the "holy trinity" of family property disputation:

  • the Family Law Act 1975;
  • the various pieces of state legislation captured under the inelegant title of "De facto relationships law (at least for the time being);" and
  • equity.

It is this third component, and its relationship with the first two, that I shall discuss herein.

Constructive Trusts – a Jurisprudential Reminder

As a creature of equity, a constructive trust is, principally, remedial. Trusts, generally, involve the holding of property for another such as the trustee has liabilities to account in the event of a breach of trust and in the discharge of the trustees duties. Property is the core of the trust. However, constructive trusts may not necessarily involve proprietary interests. This is the case where a fiduciary has been unjustly enriched as the expense of the principal. In cases involving family disputes, however, the application of an imposition of a constructive trust will inevitably involve property.

The remedial nature of constructive trusts does not necessarily mean it will be imposed simply because it might be fair or just. As Deane J held in Muschinski v. Dodds, the remedy will not be available for the "indulgence of idiosyncratic notions of fairness and justice." Consequently, the putative beneficiary must establish a recognised equity binding upon the conscience of the putative trustee, although Deane J did go on to hold that the factual basis upon which such equity may be found are not closed.

Traditionally, breaches of fiduciary duty, breaches of confidence, equitable estoppel, unjust enrichment and domestic property disputes are the grounds upon which putative beneficiaries have more commonly pleaded their cases.

Finally, it should be noted that courts do not "construct" a trust from the findings. Rather, the court construes a trust already imposed by operation of law and declares it to be so. It, like Portia's quality of mercy, "droppeth as the gentle rain from heaven upon the place beneath." The court simply finds that the trustee happens to be wet.

Constructive Trusts and Domestic Property Disputes Generally

One of the more creative mechanisms for the imposition of a constructive trust has been in domestic relationships. This is because, unlike the other equities, the binding of the putative trustee's conscience is not necessarily based upon any wrong-doing or fault on their part. Rather, where there is a joint endeavour established by a domestic relationship over a period of time, a constructive trust is imposed where it would simply be unconscionable for one party to retain solely the benefit of the fruit of that joint endeavour. This is, of course, proved by the contributions made, both financially and non-financially, to the fruit of that joint endeavour. In addition, the Australian courts shied away from the English approach of trying to establish a "common intention" to form a trust and for good reason. One could easily imagine the evidential nightmare of trying to establish, through a combination of past words and deeds by the parties to a domestic relationship, such an intention.

However, since the passage of the Family Law Act 1975, the need even for recourse to equity has been largely eliminated. Subsequent passage of other pieces of state legislation, notably for us here on the Gold Coast, Part 19 of the Property Law Act 1975 (Qld) and the Property (Relationships) Act 1984 (NSW) have provided similar remedial mechanisms for parties to de facto marriages. However, some relationships still slip through the gaps. Domestic relationships between homosexual men and women have only recently been included in the legislation. Other relationships may not be covered – relationships which may not satisfy the court that it ought be classified as de facto, short relationships, relationships having ceased prior to the commencement of the legislation, de facto relationships where the parties' claims are statute-barred, or where one party to the relationship has died and perhaps even unpaid carers.

It follows that equity still has a specific role to play in domestic relationships.

In Queensland, there is also an issue with respect to caveats and equitable claims in domestic relationships. Colin Forrest of Counsel, in a paper entitled "Caveats: Their Application in Family Law and De Facto Marital Property Division Disputes" wrote that in order to properly lodge a caveat, the caveator must establish a recognised caveatable interest. One of those interests may be a constructive trust, although Mr Forrest doubted whether a trust without common intention rightly constitutes a caveatable interest as the constructive trust does not exist until declared. He then said that a common intention constructive trust, or a resulting or implied trust comes into existence at the time of the acquisition of the property the subject of the trust. In my view, the High Court eschewed the need to establish a common intention in Baumgartner. The question then is, whether a constructive trust exists prior to declaration. In expressing a reserved view that it does not, Mr Forrest quotes from Professor Malcolm Cope's Constructive Trusts. Well, it is a game former QUT law-school student to cross jurisprudential swords with his old equity lecturer and Dean, Professor Cope holding both of those positions during my law school days. But one must be game in this game. Halsbury's Laws of Australia, citing Muschinski, College of Law (Properties) Pty Ltd v Willoughby Municipal Council and Giumelli, boldly states:

"...where a court retrospectively imposes a constructive trust by way of remedy, its availability as such a remedy provides the basis for, and governs the content of, its existence inter partes independently of any formal order declaring or enforcing it."

Nervously, I agree. I rely upon the Shakespearean authority above to fortify me.

In any event, the difficulty exposed by Mr Forrest in his paper is that a party to a severed de facto relationship cannot claim an equitable interest either by virtue of the relationship itself, or pending proceedings pursuant to Part 19 of the Property Law Act 1974. Neither, we would all agree, supports a caveatable interest. Once lodged however, presumably supported by a claim in equity, that is, that the party is the beneficiary of a constructive trust, the caveator must then commence a proceeding to establish the interest or the caveat automatically lapses. Clearly the proceeding that must be lodged is in equity, although it may be as an alternative to Part 19 proceedings. The further problem is that unlike Part 19 proceedings, which may be brought by way of application, claims in equity must be pleaded by way of claim and statement of claim. And despite the preference shown by some state judges for pleadings in Part 19 cases, we family lawyers are loathe to do so, preferring the application and affidavit approach.

The bottom line is – if you are in Part 19 proceedings and you want a caveat, you are suddenly in equity proceedings as well.

Constructive Trusts within the Legislation

Pursuant to section 78 of the Family Law Act 1975 and similarly pursuant to section 280 of the Property Law Act 1974, the Court has the statutory power to declare what are the title and rights to property.

Much of the recent jurisprudence referring to this case has been its impact on non- or third parties. We shall leave that topic to others in this conference. Having said that, given the broad sweep encompassed by section 79 (and its state counterparts), section 78 does have limited impact. This is because, as described in the seminal case of Hickey, section 79 proceedings determine the whole of the property pool as between the parties. Section 78 merely determines rights in some nominated property, even though it is intended to provide final relief.

One of the most important points to raise about section 78 is that its proceedings are not bound by the time restrictions referred to in section 44(3). The same applies with declarations sought pursuant to section 280 of the Property Law Act 1974, on the basis that the time restrictions in section 288 only apply to the making of a "property adjustment order" pursuant to section 286.

In order to properly consider this section, it is necessary to dissemble its important constituent part. It is declaratory relief, a creature born of the jurisdiction of the Chancery courts and then provided for in legislation, dating back to 1850. Declaratory relief is:

  • final, not interlocutory, relief (although, as established by the legislation, consequential orders may be made upon the declaration); and
  • discretionary, and to that effect will invariably not be invoked if the question from which the declaration is sought is hypothetical, or fail to resolve the questions between the parties.

It follows that in order for the jurisdiction to be properly invoked pursuant to section 78, the following applies:

  • A party is applying for a declaration that certain property is held legally or beneficially (by way of express or equitable trust); and
  • Following, that party may also be seeking orders that give effect to the trust, such as, for instance, a transfer of legal title, or the restraint of actions in breach of trust.

Section 78 is not properly invoked where a party is seeking a property adjustment order and wishes the court to consider matters beyond that in equity.

Recent Cases

Foley & Foley and Anor [2007] FamCA 584 (14 June 2007 – Bennett J)

In this case, the Husband and Wife both sought a declaration to the effect that the Wife's beneficial interest in the family home at P ("the family home") was 75%, while the Husband's was 25%. The Australian Postal Corporation ("APC"), a judgment creditor of the Husband, opposed the making of the declaration on the basis that the recoverability of the judgment debt could be adversely affected if the relief sought by the Husband and Wife was granted.

The Wife initially contributed 92% to the acquisition of the family home. She contended that, having regard to the parties' financial contributions to the home since 1984, her entitlement had reduced to 75%. The Wife further argued that the parties' financial contributions to the family home had, by operation of constructive trust principles, reduced her equitable entitlement from 92% to just 75%.

The court noted, however, that the family home was purchased by the Husband and Wife as joint tenants, and neither party sought to explain why, given the disparity in their financial contributions to its acquisition, the home was registered in both names as joint proprietors. In the court's opinion, there was no evidence to support a finding that the Husband and Wife had ever regarded the property as anything other than their family home, in which they each held an equal interest.

The court held that:

A constructive trust will be imposed by the court when, having regard to the circumstances of the case, it would be unconscionable for one party to rely, as against the other party, on legal title to property as representing the actual interests of the parties.

Rather than addressing the issues of inequity, unconscionability and unjust enrichment as between themselves, however, the parties focused their attention on what they considered to be the unfair circumstance of APC being able to access the interest that the husband holds in the family home according to the certificate of title.

Accordingly, the court held that the parties had failed to show that it would be unconscionable for the husband to retain an interest in the family home equivalent to that of the wife. Further, the parties had failed to show that holding an interest in the home equivalent to the wife's would amount to the Husband being unjustly enriched.

The court dismissed the parties' application.

This is, we think, a curious case. It seems to have been brought by the equally curious way in which the parties conducted the hearing. The court noted that neither matrimonial party sought to properly agitate the question of the inequity of the Husband's interest, the proper imposition of a constructive trust, or whether that had been trumped by the presumption of advancement as between the Wife to the Husband. It seemed that the parties were more interest in contesting the creditors rights to pursue the Husband's legal interest.

On its face, the Wife's greater financial contribution to the acquisition of the property of itself presents grounds to impose a constructive (or perhaps even resulting) trust. Admittedly, there is no good reason why a Wife would no less "advance" her Husband as vice versa, but it was undoubtedly incumbent on the parties to rebut that presumption with evidence that the contribution was intended to enliven a greater equitable interest for the Wife.

It seems the parties failed to do so and the court decided accordingly.

Kleber v Kleber [2007] FamCA 749 (29 July 2007 – Brown J)

The Husband and Wife married in 1966 and separated in 2005. During the marriage, the Husband and Wife raised four children – K, born in 1968, S, born in 1970, Travis, born in 1975, and L, born in 1978.

In 2006, the Husband and Wife brought competing applications in the Family Court for final property orders. Their son, Travis, filed an application seeking leave to intervene in the proceedings. Travis sought a declaration that the Husband and Wife held all of their interests in a farming property known as "Argyll" on constructive trust for him. The purpose of the declaration would have had the effect of removing the equity in the property from the matrimonial pool.

It was Travis' submission that he relied, to his detriment, on promises made to him by the Husband and Wife that he would inherit Argyll. He further submitted that the equity that arose could only be satisfied by the imposition of a constructive trust.

The court held that, in order to succeed, Travis needed to show that the promises made were reasonably understood and acted upon by him as promises of the making of a gift by will taking effect on death. Further, he needed to show that he had suffered detriment as a result of his reliance on these promises.

The first of the two promises Travis argued he relied on was made during the course of an alleged conversation with the Husband in 1998. In his affidavit, Travis deposed:

In about 1998 my father said to me words to the effect that, because I was working on the farm and because [S] already had a house, he would leave me the 'house paddock' after his death. The house paddock is an area of about 500 acres (on Argyll) and includes the farm house.

The Husband's affidavit was not consistent with Travis' evidence of a conversation in 1998. In his final submission, Counsel for Travis conceded that the first promise was not confirmed by the Husband, and abandoned reliance on it. Counsel then sought to argue that it was, in fact, the second promise that Travis relied on to his detriment.

In his affidavit, Travis deposed that, in September 2000, he, the Husband, the Wife and K met to discuss the future of the farm. It was during this meeting that Travis learned that the Husband and Wife had recently had new wills drawn up, and were leaving the farm to him.

In his affidavit, Travis deposed:

Because of the promises made to me by my father and mother I was prepared to remain working on the farm. If it did not have this expectation I would have sought work elsewhere to get proper remuneration.

Both the Wife and K denied attending any such meeting.

It was Travis' submission that he continued to work on the farm on the understanding that he would inherit the farm. The court held, however, that this was the only evidence of any connection between the September 2000 promise and his work on the farm since. In the court's opinion, Travis' oral evidence clearly demonstrated the lack of any causal connection between the two.

Having found neither promise established by the evidence, the court held that Travis' application for a declaration that the Husband and Wife held all of their interest in Argyll on constructive trust for him must fail.

One can easily step back and see the "equity" in this decision. To "remove" the substantial matrimonial property from the pool, simply because a child was told he would inherit, is somewhat of a folly. It is not unreasonable for children to expect to inherit from their parents, disentitling conduct notwithstanding, and one assumes Travis may well have ultimately secured his interest upon his mother's demise.

One can only imagine that siding with his father in these proceedings to exclude the mother, even if that potentially meant that Argyll remained "in the family" and not sold, meant that Travis' inheritance "bolt" may well have been shot. We hope he was advised accordingly as to the dangers of such a tactic.

O'Hara & O'Hara and Ors [2008] FamCA 189 (20 March 2008)

The Husband, the Wife, the Husband's Father and the Husband's Mother (the 2nd and 3rd respondents) were the registered proprietors of a property at E ("the E property").

The 2nd and 3rd respondents sought orders to the effect that the Husband and Wife held on trust for them an 11.75% interest in the E property, and that the whole of the Husband's and Wife's interest in the property be transferred to them for the payment of a sum of money. These orders were sought on the basis that the 2nd and 3rd respondents had contributed financially towards the improvements made to the E property.

The court considered whether the claim by the 2nd and 3rd respondents against the Husband and Wife in respect of the improvements made to the E property could be satisfied by an equitable charge, or whether the Husband and Wife held part of their interest in the E property on constructive trust for the 2nd and 3rd respondents.

In the court's opinion:

It would be unconscionable for the Husband and Wife to share in the increased value of the E property brought about by monies invested in it by the 2nd and 3rd respondents improving the property...

Accordingly, the court concluded that the Husband and Wife held part of their interest in the E property on constructive trust for the 2nd and 3rd respondents.

A market appraisal revealed that 23.5% of the current value of the E property was attributable to the improvements paid for by the 2nd and 3rd respondents. 23.5% of the current value equated to $172,725, and the court held that the 2nd and 3rd respondents should each receive half of this amount.

In this case the presumption of advancement, parents to child, was rebutted. As the court discussed, the presumption must be rebutted by clear evidence that at the time of the contribution, the parties did not intend there to be a gift or advancement. Documentary evidence of a loan or security will inevitably suffice. Even an oral agreement for loan will be corroborated by the child's repayment of some of the loan.

In this case, all parties acknowledged a "scheme of arrangement" between parents and the married parties that the parties would help out with the purchase of the property and be compensated at some later point. The extent of the "arrangement" was not agreed, but the court was otherwise comfortable that whatever the precise terms of the "arrangement," the parties clearly intended that there was no gift.

Karbines & Karbines and Anor [2008] FamCA 307 (2 May 2008 – Dawe J)

The Husband and Wife married in 1983 and separated in 2005.

C Pty Ltd was incorporated in 1987. The Husband and Wife are the directors of, and had an equal shareholding in, the company, which operates as the trustee for the Family Trust. In 2002 the Husband and Wife purchased property in Queensland ("the Queensland property"). On 13 February 2007, C Pty Ltd was placed in liquidation.

The liquidator, Mr R of S & Co, provided evidence that C Pty Ltd's funds had been used to pay the mortgage over the Queensland property. The Husband and Wife did not dispute this, but instead argued that the mortgage repayments were made by the company in lieu of rent. The Husband's oral evidence also confirmed that the Queensland property was used to store stock of C Pty Ltd, and that part of the property was used as an office and showroom.

The liquidator sought a declaration that the Queensland property was held on constructive trust for C Pty Ltd to the extent of the mortgage repayments made by the company, namely $65,301.

The court concluded that C Pty Ltd did not receive any benefit or consideration for the payment by the company of the mortgage over the Queensland property. The court noted that the companies operated by the Husband and Wife (including C Pty Ltd) may have received some benefit because stock was kept at the Queensland property, however the evidence was unclear as to which of the companies received these benefits.

Accordingly, the court held that C Pty Ltd had an equitable interest in the Queensland property to the extent of the mortgage repayments made.


Given the jurisprudential focus of this paper, it is perhaps appropriate that we summarise the important applicable threads referrable to the topic. These are, we think, as follows:

  • Equity remains an important aspect in the resolution of domestic property disputes despite the powers available to the courts in what might inelegantly be called "normal" property proceedings;
  • The finding of a constructive trust is based upon principles established in equity, and not based upon idiosyncratic notions of what might be just or fair;
  • Proceedings in equity can run concurrently with other domestic property disputes, however it is only equity proceedings which may support a caveatable interest (in Queensland);
  • Section 78 (section 280) is an independent source of power and may be invoked where other proceedings may be time-barred, or where the issue in dispute is the interest in certain property;
  • A constructive trust will not be found where the presumption of advancement applies and the party seeking the declaration of the trust has an onus to establish a rebuttal of the presumption; and
  • Proceedings involving non- or third parties are the fertile grounds for proceedings for constructive trusts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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