Question One: The law on constructive trusts of the family home often relies on intentions that the parties never had, both in cases of sole and joint ownership. Critically discuss the above statement, with reference to relevant case law.
A constructive trust is an equitable remedy based on the principle of unjust enrichment. Courts construe a constructive trust when a person intends to unfairly benefit from a property at the expense of another person. The law of constructive trusts states that the owner of a property must recognize that a person who made a substantial improvement to his or her property, has an interest in the property. Courts apply the doctrine of constructive trust in the division of matrimonial property.[1] This section shall discuss the history and elements of a constructive trust, and how constructive trust is applied in the determination of cases that involve the division of matrimonial property.
Under English common law, the Courts of Chancery treated constructive trust as an ideal type of trust. Sometimes the courts considered constructive trust to be the same as express trust.[2]Although both forms of trust were substantially different, they had one similar element. In both, there is one person who holds property in trust for the benefit of another. Constructive trust was by operation of law. Unlike in express trust, where there had to be an intention to create a trust, in constructive trust the intention of the parties was not a mandatory requirement.
In the early nineteenth century, some English legal scholars claimed that constructive trust was based on the theory of unjust enrichment. In the Second Edition of the Law of Restitution, Goff and Jones argued that the purpose of a constructive trust was to provide a remedy to victims of unjust enrichment.[3] However, other scholars argued that constructive trust and the unjust enrichment theory were two distinct legal concepts.
Prior to the mid-nineteenth century, women were not allowed to own matrimonial property in England. The rise of the feminist movement made courts start recognizing women’s property rights. Before countries codified women’s property rights, the principles of constructive trust governed the division of matrimonial property upon divorce.[4] Judges were required to divide matrimonial assets equitably taking into account the wife’s contribution (financial or non-financial).[5] With time states codified the principles of constructive trust in their property laws.
The law of trust recognizes two forms of constructive trust: Institutional constructive trust and remedial constructive trust. An institutional constructive trust arises where a trustee breaches his or her fiduciary duty. In the case of Keech v Sandford, a trustee failed to renew a lease that registered under the name of a minor. Instead, the trustee renewed the lease under his own name.[6] The court imposed a constructive trusteeship to make the trustee account for all the profits generated from the lease since its renewal. Further, an institutional constructive trust may arise in the case of mutual wills. In the case of Birmingham v Renfrew, a widower altered his wife’s will so that all his wife’s assets would go to him and his family.[7] The court imposed a constructive trust which granted the woman’s family a share of the estate.
A remedial constructive trust is imposed by courts as a judicial remedy in suits that involve the breakdown of a legal relationship and the parties’ proprietary interests violate the equitable principles. This form of trust is not recognized under the English law of trust. In Gissing v Gissing, the court failed to recognize a wife’s non-financial contribution in respect to the matrimonial home.[8] The court held that the parties did not have a common intention that the wife will have a beneficial interest in the matrimonial home which the husband had purchased alone.
Judges have examined the issue of whether constructive trustees have the same duties as express trustees. In the case of Williams v Central Bank of Nigeria, the court held that a constructive trustee whose position was due to breach of fiduciary duty, cannot have the same duties as an express trustee.[9] On the other hand, in the case of Agusta Pty Ltd v Provident Capital Ltd, the court held that a constructive trustee had the same obligations as an express trustee.[10]
For a constructive trust to be upheld in a court of law, three factors must be present. Firstly, there has to be a property or proprietary interest. Secondly, the plaintiff must have a beneficial interest in the property. Lastly, there has to be unjust enrichment that causes one party to suffer detriment. The seclusion of these factors will void the legitimacy of the trust.
The trust requires the existence of property or rather an interest that arises from the said property. There are various ways to obtain interest or property, especially when the property owner leads the claimant to believe they will benefit from the property. According to Meggary & Wade, this is achieved when the owner motivates and encourages the claimant to spend money or other resources such as time into the property. This results in the development of equity that provides the claimant with the right to demand relief from the court system.[11]
The complaining party should at least have a claim to the property. The claimant must be able to prove and show any wrongful obtainment of property or interest. This can be traced to the Ninth Circuit law. Some of the limitations are; the claimant may be unable to prove this within the given time under the contract. In other situations, the property or interest been investigated may have been included with the personal interests and property of the defendant. Such cases result in the nullification of the constructive trust.[12]
Other cases have shown complaint claiming property despite no contract breach. As a result, the court of law cannot create trust. In other circumstances, the lack of a constructive relationship nullifies the claim to obtain constructive trust. This is common amongst unmarried couples who are cohabiting. The law does not provide any form of legal protection to such arrangements.[13]This means that during matrimonial property disputes, only married couples can utilize constructive trust.
Nevertheless, there are situations where an individual obtained property before being married. This makes it hard to establish a common interest. An example is seen in the case of James vs Thomas. Mrs James laid claim to part of the property owned by Mr Thomas, a property he had acquired from his parents. Their relationship had begun three years later after he acquired the property. Since Mr Thomas business was based at his home, Mrs James had helped around and even lent him €5,000 to help pay his taxes. Before their divorce, they were able to acquire property adjoining theirs and also, Mr Thomas had assured her that she would benefit from the interest of the property. According to the presiding judge, Mrs James’ entitlement to the property was void. This is because the assurance given by her ex-husband was insufficient for there to be a common interest, thus no constructive trust.[14]
The meaning of matrimonial or family property varies from one jurisdiction to another. However, almost all states agree that for property to be categorized as matrimonial or family property, it must be acquired by the spouses during the existence of the marriage. The acquisition may either be solely or jointly. When dividing matrimonial property, the court is guided by the matrimonial property laws and the principles of constructive trust.
When spouses buy a matrimonial property, but the property is registered in the name of one spouse, the courts have to take into account the non-financial contribution of the spouse whose name is not in the deed. In most cases, the wives are the ones whose names are not included in the title documents of the matrimonial property. When the relationship dissolves, the courts have to consider the wife’s indirect contribution such as taking care of the home and nurturing the children.
An example is seen in the case of Grant vs Edwards where Mr Edwards acquired a house under his name and that of his brother. He had informed his wife, Mrs Grant, that her name would not be included because she was bearing his child, and also, in case of a divorce, it would affect it. Through the use of two mortgage bills and an initial deposit of € 550, Mr Edward acquired the property. Later he was able to pay off the first mortgage but was unable to pay the second mortgage. Through Mrs Grant’s efforts around the household, such as housekeeping, Mr Edwards was able to pay the second mortgage. According to the court, Mrs Grant was entitled to half the beneficial interest due to her indirect contributions that allowed for the settlement of both mortgages.
Further, in the case of Eves v Eves, a man purchased a property and registered it in his name.[15]When he purchased the property, he was cohabiting with a woman who was pregnant for him. When their relationship ended, the court awarded the woman one-quarter of the beneficial interest because she had made some substantial improvements to the property.
For a property to be under constructive joint ownership, records need to show evidence of the purchase money or instead contribution both directly and indirectly to the purchase of the property.[16]Therefore, both parties may have equivalent interest in a property. In instances where the person with the legal title tries to deny the other party interest in the property, the claimant must establish a common intention. This results in the negation of the purchase price, thus the need for constructive trust. The claimant ends up with the obligation to prove that the benefits they expected do not match the title. The court will then assess all circumstances tied to the case. The court may infer or impute an intention after considering all circumstances. Cases of imputation are done to achieve fairness in scenarios where the parties are married. According to the marital act, additional statutory principles are considered.[17]
In the case of Stacks v Dawden, the parties were living as cohabitees.[18]During their cohabitation, they purchased their matrimonial home under their joint names. The parties never made a declaration to determine their beneficial interests. The court held that because the property was registered under the parties’ joint names, the beneficial interest was also held jointly.[19]There are instances where joint ownership does not mean that the parties share the beneficial interest in the ratio of 50: 50. In the case of Jones v Kernott, Mrs Jones contributed a larger percentage of the property’s purchase price.[20] The court held that Mrs Jones and Mr Kennot shared the beneficial interest in the ratio of 90:10
The imposition of constructive trust is affected by various factors such as breach of fiduciary duty, domestic relationships, third parties and even mutual wills.[21]Fiduciary duty is when an individual does an act that benefits another person out of their own best interest. Regardless, it is not clear what grounds a person is held under a fiduciary.[22]When there is proof of trust and confidence being placed on an individual, the court can find a fiduciary. When the fiduciary duty is violated, two issues arise. One is if the individual to whom the fiduciary is owned gains or benefits. The second is whether the fiduciary gained anything from his or her position.[23]
The court may postpone the effect of a constructive trust. This is especially when the claimant was also involved in breaching the trust or when trying to recover trust property in possession of the trustee. Another instance is when the beneficiary does not report on a breach of trust within an agreed time.[24]There has been criticism over joint ownership. One is that it favours women over men resulting in unfair privileges. The uncertainty of what is regarded as a valuable contribution is seen in cases where non-financial input is regarded as a necessity, and financial contributions are disregarded.
To conclude, the law of constructive trusts has guided the courts when determining disputes involving sharing of matrimonial property. When the parties do not have an express declaration that states their share of the beneficial interest, the court imposes a constructive trust to ensure that each spouse has an equitable interest in the matrimonial property. Therefore, constructive trusts help to mitigate the harshness of the rules of common law which denied women their matrimonial property rights.
[1] L, Smith, ‘ Constructive Trust and Constructive Trustees’ [2000] 58 The Cambridge Law Journal 294
[2] Ibid
[3] Smith (n 1) 300
[4] T, Etherton, ‘Constructive Trusts: A New Model for Equity and Unjust Enrichments’ [2008] 67 The Cambridge Law Journal 265
[5] Ibid
[6] Keech v Sandford [1726] EWHC J76
[7]Birmingham v Renfrew [1937] ALR 520
[8] Gissing v Gissing [1971] AC 886
[9] Williams v Central Bank of Nigeria [2014] AC 1189, 1197
[10] Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26, [36]
[11] Ibid
[12] Friendly, Henry J. “The” Law of the Circuit” and All That: Foreword to the Second Circuit 1970 Term.” St. John’s Law Review 46.3 (2012): 2.
[13] Cain, Patricia A. “Same-sex couples and the federal tax laws.” Law & Sexuality: Rev. Lesbian & Gay Legal Issues 1 (1991): 97.
[14] James v Thomas [2007] EWCA Civ 1212 Court of Appeal
[15] Eves v Eves [1975] 1 WLR 1338
[16] HSBS Bank vs Dyche (2009) EWHC 2954 High court.
[17] Galloway, Kate. “Normative foundations of intimate partner constructive trusts.” Curl: Property law, women and law, contemporary legal issues (2013).
[18] Stack v Dowden [2007] 2 AC 432
[19] Ibid
[20] Jones v Kernott UKSC 53
[21] Hepburn, Samantha. Principles of Equity & Trusts (Aus) 2/e. Routledge, 2013.
[22] P, Adina. ‘Good faith in corporate law–an independent fiduciary duty or an element of the duty of loyalty?’ [2016] 6 Tribuna Juridică 117
[23] Cohen, Joel M., Mary Kay Dunning, and Gregory H. Shill. “Erosion of the Fiduciary Duty Requirement in Insider Trading Actions.” The Harvard Law School Forum on Corporate Governance and Financial Regulation. 2010.
[24] J, Darryn., ‘Reining in the Constructive Trust’ [2010] 32 Sydney Law Review 10
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