ABSTRACT

258Constructive trusts arise by operation of law, which means that they arise automatically and their existence is recognised retrospectively by the courts. In general terms, a proprietary constructive trust will be imposed on a person who has knowledge that her dealings with an item of property have been unconscionable. 1 All constructive trusts can be understood as arising on the basis of this central principle, even though there are many different sub-species of constructive trust which may appear to be superficially different.

The most significant categories of constructive trust are the following. A fiduciary will be constructive trustee of any unauthorised profits made from her fiduciary office, even where she has otherwise acted in good faith, so as to prevent the possibility of a conflict of interest. 2 If the property cannot be located or identified, then the fiduciary will be liable to account for its equivalent amount. No liability will arise if the profit was authorised. The Companies Act 2006 permits company directors to receive authorisation from other directors in specific circumstances.

A fiduciary who receives a bribe will be required to hold that bribe or any substitute property acquired with that bribe on constructive trust. That fiduciary will also be required to hold any profits derived from that bribe on constructive trust. The same approach is taken in relation to any person who acquires property as a result of an illegal act such as killing or theft. Constructive trusts have also arisen in relation to contracts for the sale of land, in relation to some agreements to develop land, in relation to mutual wills, and in relation to specific equitable doctrines, as detailed in this chapter.

There are also personal liabilities to account as a constructive trustee – meaning that no property is held on trust but rather the defendant must compensate the beneficiaries – where a person has dishonestly assisted in a breach of trust or knowingly received property unconscionably as a result of a breach of trust. These heads of liability for so-called ‘strangers’ are considered in Chapter 19.

Constructive trusts over the home are considered in detail in Chapter 15 Trusts of Homes.