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CONSTRUCTIVE TRUST

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CONSTRUCTIVE TRUST
Any instances of
Constructive Trust
Strangers As
Constructive Trustee
1) Fiduciary
2) Mutual Will
3) Vendor of Land
4) Conveyance By Fraud
5) Acquisition By Killing
6) New Model.
1) Knowing Receipt and
Dealing
(Recipient Liability)
2) Knowing Assistance
(Accessory Liability)
LEARNING OUTCOMES: Students
will be able to know
WHAT
HOW

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What is Constructive Trust
• It is a trust implied by law due
to occurrence of specific event
• Court will recognize
beneficiary’s pre-existing
proprietary interest in the
property

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Perceptions on Constructive Trust
• English Law : Equity will interfere to create
relationship between parties using trust
principles
• Canada : closely with the principle of unjust
enrichment
• Australia : unconscionable conduct
• New Zealand : reasonable expectation
• Malaysia: a remedial device- devise by equity
to justify its intervention as against
accountable person; to prevent any unfairness
or injustice.

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INTRODUCTION
• Nobody create it
• It comes into being on its own
by operation of law
• It is not the produce of implied
intention.
• It is the circumstances in which
property is subjected to a trust
by operation of law.

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Nature and Scope of
Constructive trust
a) Undefined and Vague
b) A wide variety of situations
• Based on cases, constructive
trust may arise under certain
circumstances.

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CARL ZEIS STIFTING V HERBERT
SMITH (1969) 2 CH 276
Lord Elmond Davis:
• “English law provides no clear and all
embracing definition of Constructive
Trust. Its boundaries have been left
perhaps deliberately vague so as not to
restrict the court by technicality in
deciding what justice of a particular case
may demand.”

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Types
1)Institutional Constructive Trust
- Ct will declare the existence of such a trust
in the past.
2) Remedial Constructive Trust.
- No prior existence of trust
- Main consideration : assets in the hand of
defendants and he is obliged to hold it for
the benefit of others

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Other Classsification of Constructive Trust
Institutional Remedial
1) Breach of Fiduciary Duty
2) Recipient Liability
3) Accessory Liability
4) Agreement to Dispose of
Property
5) Agreement to Create
Secret Trust
6) Agreement For Mutual
Will
1) Acquisition By Killing
2) Co-habitees

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Difference between
Constructive Trustee and
Ordinary Trustee
- Duty is less onerous
- No obligation to invest
- No obligation to observe the
usual duty of diligent (exacta
diligentia)

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BANK BUMIPUTRA MALAYSIA BHD V.
MOHAMED SALLEH [2000] 2 CLJ 13
• Gopal Sri Ram SCA COURT OF APPEAL,
KUALA LUMPUR
• It is quite true that Courts of Equity have been
careful not to permit a litigant from relying on
the concept of constructive trust willy-nilly.
Decisions of the English Courts show that the
device of a constructive trust is not to be
readily inferred in the absence of a clear
intention to create a trust.
• (See Green v. Russell [1959] 3 WLR 17; Re:
Schebsman [1944] Ch. 83.)

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a) Unauthorised Profit by A trustee Of
Fiduciary
• Refers to profits made by a person in a
fiduciary relationship
• A person in a fiduciary
relationship/position may not use his
position to gain benefit for himself.
• He must not put himself in a position
where his interest and duty might
conflict.

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Continue
• Debarred from keeping or taking a
personal advantage which directly or
indirectly arise out of his
fiduciary/quasi fiduciary.
• Eg: trustee, personal representative,
tenants for life, agents.

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• A fiduciary will also be liable to account
For any payments that he may received as
a result of his position.
• Such payments is known as secret profits.
• It has been established that a fiduciary
cannot retain the profit which he received
from secret profits UNLESS such
retention is either authorised in advance
or subsequently ratified by the principal
with full knowledge of all relevant facts.

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READING v A.G (1951) A.C 507
• Reading is a Sergeant in the British Army was
posted to Cairo. He involved in undesirable
elements.
• He was given a bribe for sitting in a lorry which
bought smuggle things – purpose when the
Cairo security’s British army in the lorry, they
will let the lorry go.
• He was caught and the British authorities
seized the fund which he received. He claimed
the sum.

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• COA : Assumed a fiduciary relationship is
necessary; such relationship arose from the use
by the suppliant of his uniform and the
opportunities attached to it.
• Although the use if the concept of fiduciary
r/ship was in a very loose sense, the retention
of money was justifiable since it was held as
trust money.

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Circumstances of fiduciary
relationship; Asquith LJ
• A) the plaintiff entrusts to the defendant
property . . . and relies on the defendant to
deal with such property for the benefit of
the plaintiff or purposes authorised by
him and not otherwise, and
• B) whenever the plaintiff entrusts to the
defendant a job to be performed . . and
relies on the defendant to procure for the
plaintiff the best term available.

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LISTER V STUBBS (1890) 45 Ch. D 1
• Plaintiff employed defendant as a purchasing
agent but defendant gave orders to a third party
in return for a commission.
• Plaintiff would like to recover the commission.
On the basis that the defendant was a
constructive trustee of the money.
• COA: declined to grant the order. The only
obligation of the defendant was to pay over the
sums received to the plaintiff.

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BOARDMAN V PHIPPS (1967) 2
A.C 67
• The trustee was a minority shareholder in a
private company which was not effectively
managed.
• Boardman acted as a solicitor to the trust. He
and one of the beneficiary bought the necessary
shares themselves and reorganised the company
and all this was done in good faith and with the
object of enhancing the trust holdings.
• Both the personal and the trust holding
increased in value.

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• Held: Boardman was a constructive
trustee of the profit made on his
personal shareholding.
• The opportunity to make the profit arose
out of his fiduciary relationship with the
trust.
• Compensation was ordered from the
trust in recognition of the work and skill
involved in the reorganisation.

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b) MUTUAL WILLS
• This is when 2 persons (usually
husband and wife) may agree that on
the death of either one of them, the
property shall be enjoyed by survivor
and after his/her death by nominated
beneficiary.
• Mutual will be effective in this
circumstances if survivor is given a
life interest or absolute interest with
no will at all.

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QUERE
• To what extent such an agreement
controls the devolution of their
property?

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Agreement is very important
a) An agreement to make wills and not to revoke
them between parties must be proved.
b) Agreement must indicate:
- the wills are to be mutually binding
- Evidence must be clear and may be extrinsic
- Agreement must amount to clear contract at law
- Conduct of parties may be inferred

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CASES
• RE OLDHAM [1925] Ch 75
• H & W made a mutual will in similar form.
Each spouse left his/her property to ors
absolutely with the same provisions in the
event of the other predeceasing.
• No agreement that this should be irrevocable.
• H died, W remarried and made a will
different from the earlier one.

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• Ct : upheld the second will
• There is no evidence that in an
agreement that the trust in mutual will
should in all circumstances be
irrevocable.

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RE CLEAVER [1981] 1 WLR 939
• H & W married in 1967 and H had 3 children.
They made a will in favour of one another and
in default to their three children.
• 1974: each of them reduced the share of one
daughter ( Martha) to life interest
• H died and W made new will consistent with
the earlier but enlarging Martha’s life interest to
absolute interest.
• Before she died left her residue to Martha and
not to the other two.

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• Held : W’s executor was holding the
estate on trust and W was under the
obligation to leave the property to all 3
children

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c) VENDORS OF LAND
• When vendor and a purchaser enter into a
specifically enforceable contract for the sale of
land equity looks upon the vendor as a
constructive trustee holding the property for
the purchaser who is regarded in equity as the
owner.
• The availability of remedy known as SP
means that the purchaser is already an owner

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SHAW V FOSTER (1872) LR 321
• Lord Cairns : “The vendor was trustee of the
property for the purchaser; the purchaser was
the real beneficial owner in the eye of a Court
of Equity of the property subject only to this
observation, that the vendor, whom I have
called a trustee, was not merely a dormant
trustee, he was a trustee having a personal and
substantial interest in the property, a right to
protect that interest and an active right to
assert that interest if anything should be done
in derogation of it.

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• The relation therefore, of trustee and
cestui que trust subsisted subject to
paramount right of vendor and trustee
to protect his own interest as vendor of
their property”

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LYSAGHT V EDWARDS [1876] 3
Ch 499 at 507
• Jessel MR : “ the moment you have a
valid contract for sale the vendor
becomes in equity a trustee for the
purchaser of the estate sold and the
beneficial ownership passes to the
beneficiary.”

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SIAU PHIN FATT & BROTHERS SDN BHD V. THIEN KIM
FAH & ANOR. & A THIRD PARTY[2000] 1 LNS 21
• The said Land is registered in the name of the Plaintiff.
• The Plaintiff did send a notice to the Defendants to vacate
the said land
• Hence the primary issue is therefore whether there is any
basis for the Defendants to remain on the said Land.
• The Defendants justify their stay on the said Land on an
existence of constructive trust as it is their claim that the
said Land as well as the other piece in the names of the
other two siblings were bought by the mother.
• Since it is the Defendants that are raising such matters the
burden is therefore upon them to prove those assertions.

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Wong Siew Choong Sdn Bhd v Anvest
Corporation Sdn Bhd [2002] 3 AMR 2554
Abd Kadir bin Sulaiman JCA;
• “…the appellant vendor becomes in equity the
trustee for the respondent purchaser of the
said land sold, and the beneficial ownership
passes to the purchaser subject to appellant’s
right to the purchase money, a charge or lien
on the said land for the security of the
purchase money and a right to retain
possession of the said land until the purchaser
money is paid by the respondent.

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d) CONVEYANCE BY
FRAUD
• Where property has been obtained by the
fraud of the defendant, he may be
compelled to hold it as a constructive
trustee
• Eg: a will is fraudulently revoked, the
testator is fraudulently prevented from
making a will or fraudulently induced to
leave property to legatee or other person.

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e) ACQUSITION BY
KILLING.
• Where a beneficiary kills the testator or
next of kind kills an intestate, the
murderer will be prevented form
benefiting from his crime.
• A rule of public policy
• Killing may be effected by any means
from murder to accident. An exception to
manslaughter

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RE DWS (deceased) [2000] 3 WLR
1910
• X murdered his parents, who died
intestate and had no other children. X’s
only child, Y claimed the property of
his parents.
• Ct ; Y’s claim failed. The public policy
rule did not require the court to treat
the murderer as having predeceased
the victim.

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f) CONSTRUCTIVE TRUST OF A NEW MODEL
: JUSTICE AND GOOD CONSCIENCE
• Introduced by Lord Denning.
• CT may be imposed regardless of
established rule, in order to reach the
result required by equity, justice and good
conscience

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HUSSEY V PALMER [1972] 1 WLR 1286
• “ It is a trust imposed by law
wherever justice and good conscience
require it. It is a liberal process,
founded on large principles of
equity.”
• Usually been use in principles of
property law involving unmarried
couple.

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EVES V EVES [1975] 1 WLR 1338
• “In strict law she has no claim upon
him whatever. She is not his wife. He is
not bound to provide a roof over her
head. He can turn her into the street….
A few years ago even equity would not
have helped her. But things are altered
now…”

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• “It would be “most inequitable for him to
deny her any share in the house. The law
will impute or impose constructive trust
by which he was to hold it in trust for
both of them.”
• “Equity is not past the age of child
bearing. One of her latest progeny is a
constructive trust of a new model. Lord
Diplock brought it into the world and we
have nourished it.”

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Criticisim: In England and other jurisdiction
as well.
• NZ Supreme Court Mohan J:
• A supposed rule of equity which is not only vague
in its outline but which must disqualify itself from
acceptance as a valid principle of jurisprudence by
its total uncertainty of application and result. It
cannot be sufficient to say that wide and varying
notions of fairness and conscience shall be the legal
determinant. No stable system of jurisprudence
would permit a litigant’s claim to justice to be
considered to the formless void of individual moral
opinion.

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Muschinski v Dodds (1985) 160 CLR 583
Deane J:
• The law of Australia had no place for notion of
the new model constructive trust.
• “Under the law of this country. . . under the
present law of England . . .as, I venture to think,
proprietary rights fall to be governed by
principles of law and not by some mix of judicial
discretion . . . subjective views about which party
ought to win . . and the formless void of
individual moral opinion.”

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Malaysian Cases
• LIEW CHOY HUNG V. FORK
KIAN SENG [2000] 1 CLJ 369
• PET FAR EASTERN (M) SDN
BHD V. TAY YOUNG HUAT
& ORS[1999] 2 CLJ 886