Constructive Trusts, Unjust Enrichment, Tracing Notes
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TUTORIAL 8 CONSTRUCTIVE TRUSTS
Parker & Mellows 337-57, 366-68, 481-83, 907-48:
⇒ In the US the courts have regarded the CT as an instrument for remedying unjust enrichment a CT may be imposed whenever the CTee has been unjustly enriched by receiving some item of property at the expense of the constructive beneficiary. Doesn't mean that a CT will be imposed whenever unjust enrichment is found to exist merely one of a number of remedies available to the court & will be imposed when the court feels that it is appropriate to give the victim of unjust enrichment a proprietary remedy.
⇒ Stems from The Restatement of the Law of Restitution (1937) para 60: 'where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it, a CT arises.'
⇒ Yet the principle of unjust enrichment is not an absolute pre-requisite of the imposition of a
RCT o such trusts will also by imposed where the property is obtained by mistake or by fraud
or other wrong, whether or not the constructive trustee has been unjustly enriched.
⇒ US approach gives the beneficiary priority over general creditors of the CTee. Courts in US common law jurisdictions have been much more ready than the English courts to interfere with existing 3rd party rights.
⇒ Canada & NZ also recognise the possibility of RCTs. 20 years ago Canada recognised the possibility of doing so on the grounds of unjust enrichment but although this does remain Canadian law, the stated prerequisites for the imposition of a CT on this ground now seem closer to the pre-requisite of unconscionability which has been adopted much more recently in NZ. Approach in these jurisdictions differs from US: CTs are not seen as all embracing
exist side-by-side with the more traditional situations in which CTs have been imposed.
⇒ English law (like Australian) does not accept the RCT. CA in Halifax Building Society v. Thomas: 'English law has not followed other jurisdictions where the CT has become a remedy for unjust enrichment' & declined to 'extend the law of CTs in order to prevent a fraudster benefiting from his own wrong.'
⇒ But flurry of interest in 70s L. Denning was the main advocate in Hussey v. Palmer. Decisions such as that suggested that a CT is a 'trust imposed by law whenever justice &
good conscience require it….it is an equitable remedy by which the court can enable an aggrieved party to obtain restitution.'
⇒ But subsequent decisions rejected it. Walters: 'the CT continues to be seen as an institutional obligation attaching to property in certain specified circumstances.'
⇒ But LBW in Westdeutsche liked it a bit: 'the retention of moneys after the recipient bank learned of the mistake may well have given rise to a CT….the RCT, if introduced into English law, may provide a more satisfactory road forward.' Deane J in Oz case Muschinski v. Dodds agreed.
⇒ But at the same time LBW clearly stated that 'whether English law should follow the US &
Canada in adopting the RCT will have to be decided in some future case when the point is directly in issue.'
⇒ Further made clear by everyone who's discussing it that only HL could agree. But LBW's eagerness is markedly different from other senior judges, e.g. Lord Millett who described RCTs extra-judicially as 'a counsel of despair which too readily concedes the impossibility of propounding a general rationale for the availability of proprietary remedies.'
⇒ Little doubt that future HL or SC deliberations will be heavily influenced by its members' perception of the effects of the imposition of RCT. All commentators so far have assumed that the imposition of such a trust will automatically give the constructive beneficiary priority over the general creditors of the ctee.
⇒ Also the assumption in CA in Polly Peck (No. 2) where it was specifically held that a RCT
can't be imposed if the effect of its imposition is to modify the statutory scheme establishing
the order in which the assets of a bankrupt or insolvent person are to be distributed to his
creditors. Nourse LJ: not seriously arguable that property rights can be varied by the
imposition of a RCT, even if the potential CTee is solvent; this was on the basis that 'it is not
that you need an Act of P to prohibit a variation of proprietary rights. You need one to permit
⇒ But state of English law atm: constructive trusts are only institutional courts have generally only been prepared to impose a CT when some cause of action against the CTee has risen independently. It is not enough, like in US, to say that CTee 'is not compelled to convey the property because he is a CTee, it is because he can be compelled to convey that he is a CTee.'
⇒ In order to obtain the imposition of a CT, the beneficiary must be able to demonstrate soe legal or equitable wrong by the CTee, be it breach of F duty, participation in a breach of trust, or fraudulent or unconscionable conduct. Such developments in the law have always been brought about by the enlargement of concepts such as F relationship & unconscionable conduct rather than by recourse to the principle of unjust enrichment. For the moment ∴ the unjust enrichment of the CTee is still not in itself sufficient.
⇒ What should be the approach of English law?
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