•    Twinsectra v Yardley [2002] 2 AC 164
Facts:    Twinsectra lent money to Yardley, insisting that Yardley only use the money to purchase property (because Twinsectra wanted security for their loan). Twinsectra paid the money to Yardley’s solicitor, Sims, who signed an undertaking that the money could only be used to purchase property. Mr L, Sims’s partner, spent the money on something other than property. Mr L knew circumstances that would indicate the facts to an honest and reasonable person. The question was whether he was dishonest

Held:    The court held that he was not dishonest. Although he knew circumstances which would indicate the facts to an honest and reasonable person, he had not turned his mind to the question (he was being negligent). Hence, he was not liable as a knowing assistant.

The majority (Hoffman LJ and Hutton LJ) said dishonesty was a “combined” test of subjective and objective elements.

First, there has to be some conduct that the ordinary reasonable person would regard as dishonest (objective element). Second, the perpetrator must be aware that what they have done is against what the ordinary reasonable person would regard as dishonest. That is, even if the perpetrator does not subjectively believe that what they have done is dishonest, the subjective element is satisfied if they know that other people believe that what they have done is dishonest. 

•    Is there (should there be) a distinction between “receipt” and “assistance” cases?

“The point of difference between the person receiving trust property and the person who is made liable, even though he is not actually a recipient of trust property, is that in the first place knowledge, actual or constructive, of the trust is sufficient, but in the second place, something more is required, and that something more appears to me to be the actual knowledge of the fraudulent or dishonest design, so that the person concerned can truly be described as a participant in that fraudulent, dishonest activity” – Stephen J citing Jacobs J in Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975).

Is the constructive trust a remedy to reverse unjust enrichment?

•    Stephenson Nominees Pty Ltd v Official Receiver (1987) 76 ALR 485

“Whilst the constructive trust may readily be seen as a restitutionary remedy for unjust enrichment, this will by no means always be the case. The constructive trust may be imposed as a cautionary or deterrent remedy even where there has been no unjust enrichment. In such situations, the constructive trust operates not to restore to the plaintiff that of which it was deprived by the conduct complained of, but to enforce observance of the fiduciary duty not to prefer personal interest to duty.” (Gummow J)

(B)    Constructive Trusts Imposed to Prevent Unconscionable Conduct

Constructive trusts to prevent unconscionable conduct

•    The domestic context:    On what basis did the court impose constructive trusts in the following cases?

The common intention constructive trust

•    Green v Green (1989) 17 NSWLR 343
Facts:    He brings her (a minor) to Australia from Thailand in 1966, and they enter a de facto relationship. He persuades her to stay, with promises that he will look after her and provide a house. He bought a house in Kirrawee in the name of nominees and told her “this is yours”. He bought a house in Blakehurst, and persuaded her to move into it, saying “this will be yours”. He told solicitors that he planned to transfer the Blakehurst house to her. He died. She claimed that she owned either the Kirrawee house or the Blakehurst house.

Held:    The two parties intended that the property be enjoyed by both of them during their lifetimes, and that the surviving partner would have a home after the other’s death. Thus, the two held the beneficial interest as joint tenants, so that the surviving partner was entitled to absolute beneficial ownership on the other’s death.

There are two elements for a common intention constructive trust:

1)    There must be a common intention by the parties that the claimant is to have a beneficial interest in the property

The common intention can be express (e.g. evidence of communications made) or inferred from conduct (e.g. the making of contributions to the
cost of the property, or working to maintain it).

Here, the common intention was found from evidence of conversations between the parties (corroborated by a third party) and instructions he had given to his solicitor to transfer the property to the complainant.

2)    There must be conduct by the claimant to his or her detriment on the faith of that intention

Here, the wife’s actions in staying with her de facto, having his children and not returning to her native home were sufficient to demonstrate detrimental reliance.

The detriment does not have to be enormous. The fact that she did not spend money in acquiring or maintaining the property did not matter (even though this normally would be clear evidence of detrimental reliance).

Since there is a constructive trust, we can avoid the requirement of writing using s 23C(2).

•    Equity will impose a constructive trust in circumstances where it would be unconscionable for the other party to deny the existence of a proprietary interest

Constructive Trusts after Failed Joint Endeavours

•    Muschinski v Dodds (1985) 160 CLR 583
Facts:    Hilga Muschinski and Ronald Dodds bought a dilapidated cottage in the country with the intention of running an arts and crafts centre. They planned to erect a kit home elsewhere on the site. M paid the purchase price. D was to contribute the proceeds of a pending divorce settlement, and labour. The property was registered in both names as tenants in common on D’s insistence. Council refused development consent. D did not get the settlement he had hoped for. The venture failed, and the relationship soured. By separation, M had contributed $25,000 to the project, and D $2,000. M sought a declaration that she was the only beneficial owner of the property.

Legally, there was half ownership to each. Was it unconscionable for Dodds to assert half ownership, requiring the court to impose a constructive trust?

Held: Deane J:    There was a constructive trust here.

At the start, there was a shared intention that each should have a one half beneficial and legal interest in the property. Dodds should be precluded from asserting or retaining this half ownership to the extent that it would be unconscionable for him to do so.

If the relationship had been merely commercial, it would have been clearly unconscionable for Dodds to claim a half share without compensation, as at the time, he had contributed very little, while Muschinski had contributed almost all that she was supposed to.

Although not quite a joint venture or a partnership, the law relating to these enterprises may be appropriate here. In particular, where a joint venture fails, there should be a proportionate repayment of capital contributions. Here, each party should get back the contribution that they have made, and then any surplus should be distributed evenly (not 9:1). Since they agreed to go into the project 50:50, that was their intention, and that was what would have happened if the venture had succeeded.

•    Muschinski v Dodds leaves us with the proposition that only when you can identify these situations as commercial-like situations can you find this result, because Deane J does focus on the fact this was an enterprise (there was a commercial relationship side-by-side to the personal relationship).

•    What happens if there is no commercial relationship? See Baumgartner v Baumgartner

•    Baumgartner v Baumgartner (1987) 164 CLR 134
Facts:    He and she entered a de facto relationship in 1978. They lived in a unit owned by him. In 1979, he sold the unit and bought some land with the proceeds of the sale, and a loan taken out in his name. They pooled resources to meet mortgage repayments. Her income represented 45% of the combined earnings. They separated in 1982. She sought a declaration that she had a beneficial interest in the property.

Held:    A constructive trust could be imposed to give her a share of the proceeds of the property.

The land was acquired and the house built for the purpose of their joint relationship, and the pooling of earnings was for their mutual security and benefit. In these circumstances, the man’s assertion that he owned it all was enough to be unconscionable, so equity intervened to impose a constructive trust at the suit of Mrs B.
Equity favours equality and, in circumstances where the parties have lived together for years and have pooled their resources and their efforts to create a joint home, they should share the beneficial ownership equally as tenants in common, taking into account any disparity between the worth of their individual contributions either financially or in kind

The man was given back the deposit, and then the proceeds were divided 55:45.

•    Parij v Parij (1998) 72 SASR 153
Held:    The full court of the SA Supreme Court held that homemaker contributions can be taken into account in finding a constructive trust of the Muschinski, Baumgartner type.