What Is A Trust?
A trust is an agreement for a person or entity to hold an asset, or assets, for the benefit of another. A trustee can hold almost any type of property, such as real property or money, on trust.
A Trust Deed or other written document will usually detail the trust between the parties. As such, the beneficiaries and trustee's obligations will be set out in express terms. This results in an "express trust".
What Is A Constructive Trust?
A "constructive trust" exists where there is an implied agreement. Constructive trusts arise from the parties' conduct rather than express agreement. Various situations might result in the construction of a trust.
A Court can award a constructive trust as a remedy where a party has benefited to the detriment of another. In this case, the Court would hold the party who obtained the benefit in bad faith to be the trustee. The party who should receive a remedial benefit would become the beneficiary.
Equitable (Fair) Relief
A constructive trust is a form of equitable relief. It is like that which would be available in respect of a breach of an express trust. (see Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 at 152; BC9601416 per McLelland AJA)
A constructive trust is distinct from other forms of trusts in that it is usually remedial. It is a type of relief available when it would be unfair for a party to, in poor conscience, keep a benefit.
Unconscionability is a key consideration. The High Court has accepted this as the benchmark to determine the award of a constructive trust.
Cases Discussing Constructive Trusts
Muschinski v Dodds and Baumgartner v Baumgartner
Justice Deane said in Muschinski v Dodds(1985) 160 CLR 583 at 614:
"Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle."
Justice Campbell's judgment in West v Mead  NSWSC 161, analysed with comprehension the decision in Baumgartner v Baumgartner (see(1987) 164 CLR 137). His Honour noted (at ) that Baumgartner v Baumgartner:
"involved a significant extension of the law of constructive trusts concerning property acquired in the course of a domestic relationship."
Further, Campbell J explained that the majority adopted Deane J's analysis in Muschinski v Dodds.This analysis used the principles for determining property entitlements after failed commercial ventures. These equitable principles were applied in the context of domestic relationships.
In a District Court of Queensland case, DLA v MB & Anor (see  QDC 336 (12 November 2012)) Dorney QC DCJ stated:
"In Barker v Linklater, the Court of Appeal was concerned with, amongst many other things, the possibility of an imposition of a constructive trust in respect of a shared home owned by of the cohabitants. As can be seen immediately, this proceeding differs in that the Buderim property is vacant land. As indicated by Muir JA, with whom Douglas J expressly agreed, nothing in the authorities canvassed - which included Baumgartner v Baumgartner and Muschinski v Dodds - suggests that the mere existence of long-term cohabitation, even in a de facto relationship and even if combined with sharing of household expenditure and a division of household labour, suffices to justify imposition of a constructive trust in respect of the "shared home" owned by one of the cohabitants: at 425 .
Muir JA then referred to cited authority which stated that it is clear that the mere existence of a matrimonial or de facto relationship, combined with express or implied undertakings to provide support and accommodation, will not form a sufficient basis for concluding that there is a constructive trust by virtue of which a proprietary interest in the "home occupied by the parties" is created.
For his part, Jerrard JA, when examining this issue, noted that the trial judge had concluded that the applicant did not demonstrate a representation was made that the other party "would give her the house or life interest in it, or that there was any common intention that the (applicant) was to receive the house", adding that the moneys claimed to have been expended on the other party were not in fact expended as claimed."
Dorney QC DCJ (citations omitted)
Example Of the Court Finding A Constructive Trust Exists
In Giumelli v Giumelli the Court determined that a constructive trust existed between the parties.
Mr and Mrs Giumelli, the Defendants, owned property. Their son was the Plaintiff.
Conduct Resulting in A Constructive Trust
Mr and Mrs Giumelli promised to transfer part of a farming property to their son. The promise was on the basis that he continued to live at the property and work the land. Their son had acted to his detriment in reliance on that promise of future ownership of the land.
Steps Taken by The Court
The Court estopped Mr and Mrs Giumelli from resiling from a promise to transfer the property.
The Full Court made an order that Mr and Mrs Giumelli held the whole of the property on a constructive trust. This was pending the subdivision of the property and the transfer of the promised lot to their son.
Some Other Considerations In Constructive Trust Cases
Courts are typically reluctant to find that a proprietary constructive trust exists. This is due to the extensive ramifications. In the absence of such relief, a person may secure or maintain an interest in property or money. They could gain or keep this interest contrary to equitable principle. (see Muschinski v Dodds (1985) 160 CLR 583 at 614)
Type of ReliefThe relief awarded may be:
- proprietary (enforceable against the property or asset) or
- personal (enforceable against the person who granted the rights).
If the Court determines the interest is personal it will impose a monetary liability. The Court may otherwise determine the interest is proprietary. In this case, it will treat one party as having (or as having had) a beneficial interest in the property held by the other.
A court may only impose a constructive trust after consideration of alternative remedies. It should first determine whether an appropriate remedy exists that is less imposing. For example, the Court may order equitable compensation instead.
Another relevant consideration is whether the proposed relief would prejudice any other persons.
When the Court Is Likely to Award A Constructive Trust
Constructive trust relief is appropriate where:
- a person has appropriated a benefit or the proceeds of a benefit;
- they did so in breach of their contractual, legal, or equitable obligations to another; and
- the Court finds that the person could not, in good conscience, keep the benefit for themselves.
To this end, the constructive trust arises by "operation of law". That is, its creation can occur regardless of actual or presumed intention.
Other Types of Trusts
Other types of trusts do not need a Court to find that they exists such as express trusts. A person's Will may have terms for a testamentary trust on that person's passing. People also establish trusts for commercial reasons under Trust Deeds.
Resulting trusts are also a type of trust where a court must make a finding and usually arise where an express trust fails for some reason.
We have also written about the working of trusts, other than 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.