Constructive Trusts Of Property And Constructive Trusts Of The Home Notes

Topic 9 – Implied Trusts of the Home

Constructive Trusts of Property:

• Constructive Trust of property = arise by operation of law and reflect parties informal intentions, even though 1 party may deny such intention. They are imposed by equity when good conscience requires the owner of property to hold it for another.

  • English law treats constructive trusts as a substantive institution – arising automatically by operation of law from the date of the circumstances giving rise to it and substantive rights over the property itself (Westdeutsche Landesbank Girozentrale v Islington BC).

• Trustee under strict duty not to profit as owner/controller of trust property. If they do make a profit, they may have to hold what they get on constructive trust for trust fund/beneficiary (Keech v Sandford).

  • Principle extends where relationship is a fiduciary one (i.e. someone who owes another a duty of good faith) – including:

    • Trustees towards beneficiaries

    • Directors to company

    • Agents to principals

    • Partners to co-partners

    • Solicitors to clients

  • = All must account for profits made in breach of the fiduciary relationship.

• Common Intention Constructive Trusts = where Property-owner and Claimant have common but enforceable intention (due to non-compliance with formalities requirements) where Claimant is to have some beneficial interest in the property and acts to her detriment in reliance – a constructive trust will arise from the date of detriment to give effect to the common intention (i.e. Family homes).

  • Crossco No 4 Unlimited v Jolan Ltd / Banner Homes Group plc v Luff Development Ltd

    • A and B agree A will acquire some property for the benefit of both A/B on terms yet to be agreed or not certain, so that B is induced to refrain from trying to acquire the property herself, and so is disadvantaged if A claims 100% ownership = constructive trust will arise to provide an equitable interest for B despite the uncertainties.

• Substantive Proprietary Trusts = Court recognise a pre-existing equitable proprietary interest arising from certain events (i.e. agreement between relevant parties, and 1 parties later disputes this)

  • Common intention constructive trusts

  • Secret Trusts

  • Mutual Wills

  • Constructive trust on transferee of LT to property, if not a bona fide purchaser for value without notice, to give effect to express trust is justified to vindicate pre-existing/continuing equitable proprietary interest.

• Remedial Constructive Trusts = English law concerned with pre-existing constructive trust-occasioning events. Court has no discretion whether to impose a constructive trust (i.e. cannot make an order for compensation to be paid)

• Case = Re Polly Peck International Ltd (No 2)

  • CoA made clear existing property right could not be varied or new ones created so as to affect creditors’ rights on insolvency

• Case = Sinclair Investments Ltd v Versailles Trade Finance Ltd

  • Only the Supreme Court can change matters

• UK Substantive Trust = no discretion

• US/Australia Remedial Trust = discretion to change.

Constructive Trusts of the Home:

How to divide ownership of the family home between cohabitees. Problems usually arise when the relationship breaks down or where a third party makes a claim against the property.

• Identify situations when a person might need to rely on implied trusts in order to claim an interest in a home:

  • 1. Dispute where property is registered in names of both parties but no declaration of their beneficial interests.

  • 2. Dispute where LT is registered in name of 1 party only but other claims a beneficial interest in property.

• Problem arises when:

  • Relationship breaks down (on differences between the parties)

    • On divorce, the court has wide discretion to reallocate property rights between spouses under Matrimonial Causes Act 1973 [not necessary to ascertain the precise share of each party in particular property].

    • On dissolution of civil partnership, Civil Partnership Act 2004 gives similar powers.

  • 3^rd party makes claim against property – I.e:

    • Where Mortgagee seeks to reinforce their security over the property

    • Where Trustee in bankruptcy wishes to claim home to meet bankrupt’s debts.

• NO statutory provisions for unmarried different sex couples [co-habitees] who share land (beneficial ownership found by applying trust principles)

  • Possible to have an express trust:

    • However, currently, the only method ofascertaining the beneficial interestsin the home would be according to trust principles. An express trust of land needs to comply with s53(1)(b) Law of Property Act 1925, that is, it must be evidenced in signed writing.

• In the context of family relationships this is, of course, rare. Where there is no express declaration complying with s53(1)(b), the parties must rely on an implied trust (resulting or constructive) which does not have to comply with s53(1)(b) LPA 1925 and may be implied from conduct.

• Left to the courts to use their powers under S53(2) LPA 1925 to imply a trust in favour of the party claiming a beneficial interest. The implied trust is thus a default law used when no statutory provision can be applied. However, as it was not designed to respond to the modern reality of family life, the requirements are often unrealistic and somewhat unfair towards the partner who is not registered as owner at law.

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• Denning’s attempt to impute (impose upon) the parties what the court considered ‘fair share’ in justice/good conscience by ‘new model of constructive trust’ failed – scope for imputation:

  • BUT Jones v Kernott = once court found express or inferred actual intention that parties are to have different shares in the property from 100% or 50% appearing from LT being in the name of 1 or both.

  • Stack and Dowden = and above case - now given broader range of inquiry to try and infer actual intentions than permitted in HoL in Lloyds Bank v Rosset

STEP 1: Identify the issues:

• State that an express trust would clearly outline who held the LT to the...

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