The English concept of the ‘constructive trust’

Terminology of the ‘constructive trust’

The major obstacle to any analysis of the English doctrine of constructive trusts is the wide number of circumstances that the term ‘constructive trust’ has been used to describe. At its simplest, the term ‘constructive trust’ describes the circumstances in which property is subjected to a trust by operation of law. Unlike an expressly declared trust, a constructive trust does not come into being solely in consequence of the express intention of a settlor. Unlike a resulting trust, it is not the product of an implied intention.

Although the terminology of ‘constructive trusts’ is used throughout common law jurisdictions, it does not describe identical concepts. Different jurisdictions have developed widely differing views as to the nature of constructive trusts and the circumstances in which they come into existence. One of the most significant conceptual distinctions is between what are described as ‘institutional’ and ‘remedial’ constructive trusts.

The ‘institutional’ constructive trust 

An institutional constructive trust is a trust which is brought into being on the occurrence of specified events, without the need for the intervention of the court. The trust comes into being if the facts which are necessary to give rise to it are proved to have occurred. It exists from the time that the relevant events occurred. The court does not impose the trust but rather recognises that the beneficiary enjoys a pre-existing proprietary interest in the trust property. The court has no discretion to decide whether or not the property should be subject to a trust. Since an institutional constructive trust does not arise from the judgment of the court, it is capable of gaining priority over any interests acquired by third parties in the trust property during the period between the creation of the trust and its recognition by the court. 

The ‘remedial’ constructive trust

In contrast to the ‘institutional’ constructive trust, other jurisdictions have come to regard constructive trusts as one of a range of remedies which may effect restitution where a defendant has been unjustly enriched at the expense of a claimant. Having found that there has been an unjust enrichment, the court can, in its discretion, impose a constructive trust over assets representing any remaining enrichment in the hands of the defendant if appropriate, or alternatively award a monetary remedy. A remedial constructive trust is imposed by the court, which does not merely recognise a pre-existing proprietary right. The trust arises from the date of the court’s judgment and it will not therefore gain automatic priority over the rights of third parties. These characteristics of a ‘remedial’ constructive trust were recognised in Metall and Rohstoff AG v Donaldson Lufkin & Jenerette Inc [1990] 1 QB 391, where Slade LJ stated:

  • ‘…the court imposes a constructive trust de novo on assets which are not subject to any pre-existing trust as a means of granting equitable relief in a case where it considers it just that restitution should be made.’

At present English Law only recognises the ‘institutional’ constructive trust and has not been willing to adopt the remedial constructive trust. Other jurisdictions, in particular Canada, have adopted an unjust enrichment analysis to explain the availability of constructive trusts.