The English concept of the ‘constructive trust’

A constructive trust in English law is one that arises by operation of law where it would be unfair for an individual who holds an asset to deny the beneficial interest of another person in that asset.

The concept of a constructive trust was encapsulated by the English courts in Gissing v Gissing (1971) where it was held that for a constructive trust to arise there must be:

  • inducement by the legal owner of the property to the other person that they were entitled to a share in its ownership (this could be shown either through express agreement or through contribution to the acquisition); and
  • detriment to the claimant (eg, contribution made to the purchase of the property in question).

This approach was reaffirmed by the House of Lords in Lloyds Bank plc v Rosset (1991), although the court placed emphasis on the need for a common intention between the parties rather than inducement. As Lord Bridge said:


‘The first and fundamental question which must always be resolved is whether, independently of any inference to be drawn from the conduct of the parties in the course of sharing the house as their home and managing their joint affairs, there has at any time prior to acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding reached between them that the property is to be shared beneficially.’

Common intention

Common intention can either be express or implied.

Express common intention

Express common intention will be found if the claimant can prove that there was an express agreement that the property would be shared beneficially. A number of principles have arisen at common law regarding the finding of express common intention:

  • An inference will not necessarily be inferred from the parties’ expectations arising from their relationship (James v Thomas (2007)).
  • If the aim of the agreement was for an unlawful purpose – eg, to evade bankruptcy rules – no constructive trust can arise (Barrett v Barrett (2008)).
  • The exact amount of the beneficial share does not have to be agreed (Drake v Whipp (1996)).

Inferred common intention

Where no express common intention can be found, it may sometimes be inferred from the conduct of the parties, although Lord Bridge opined in Lloyds Bank v Rosset that only a substantial contribution to the purchase price would be enough for such a common intention to be inferred. The courts have decreed that:

  • If the contribution to the purchase price was through a gift or loan, no common intention will be inferred (Re Sharpe (a bankrupt) (1980)).
  • If the legal owner did not know about the contribution, no common intention will be inferred (Lightfoot v Lightfoot-Brown (2005)).
  • Where the property was bought before the relationship started it is harder to show an inferred common intention (James v Thomas (2007)).

Detriment

If a common intention is found, the claimant must then show they acted to their detriment with regard to the disputed property. This is particularly important in cases where express common intention has been found as, where common intention is inferred, the conduct leading to the inference will usually be enough to prove detriment. Factors which will be considered a detriment include:

  • a direct contribution to the purchase price;
  • home improvements (Eves v Eves (1975));
  • a financial contribution made to household expenses (Grant v Edwards (1986)).