A constructive trust will arise whenever it would be unconscionable for a fiduciary to assert a beneficial interest in property to the exclusion of the claimant. The broad nature of this trust has been kept deliberately vague so as not to restrict the jurisdiction of the court in order to prevent a fiduciary from retaining an unauthorised benefit and to provide a proprietary remedy for the innocent party. The impact of such trusts are that the innocent beneficiary (a) will gain a proprietary interest in the subject matter of the trust, (b) will be entitled to priority over the creditors of the constructive trustee in the event of the latter’s bankruptcy and (c) will have the ability to ‘follow’ or ‘trace’ his property in the hands of those acquiring the property.
The aims of this lecture are to focus on the theoretical justification for such trusts and to explore the traditional areas of law when such trusts may be declared by the courts including,
- occasions when fiduciaries abuse their position by attempting to obtain benefits in breach of their duties of loyalty;
- the disgorgement of benefits received by a single person based on a common understanding between himself and another that the latter will not compete in the acquisition of property for their joint benefit (rule in Pallant v Morgan);
- forfeiture of benefits derived from unlawful killings;
- the suspension of a statute intended to be used to promote a fraud;
- occasions when a specifically enforceable contract to dispose of property may give rise to a constructive trust.