This article aims to provide a brief overview on constructive trusts exploring the definition, principles as well as the factors considered by the Court.
Definition
A constructive trust is a legal concept that arises by operation of law rather than by the express agreement of the parties. This trust arises where it would be unconscionable for a person who legally holds title of an asset to deny the beneficial interest of another person in that asset.
It imposes equitable obligations on the legal owner of property to hold it for the benefit of another party, typically to prevent unjust enrichment or to fulfil the presumed intentions of the parties involved.
Principles
The establishment of a constructive trust typically hinges on the following principles:
Contribution: One party may contribute to the acquisition, improvement, or maintenance of property without being recognized as a legal owner. In such cases, equity may dictate that the legal owner holds the property on trust for the contributing party.
Unjust Enrichment: Constructive trusts are often invoked to prevent one party from unjustly benefiting at the expense of another. Where one party has unfairly obtained property or assets, a constructive trust may be imposed to rectify the imbalance.
Intention: In situations where the parties’ intentions regarding property ownership are unclear or unexpressed, a constructive trust may be established to reflect the intentions of the parties, based on their conduct and contributions.
Common Intention Constructive Trusts
These trusts are founded on the shared intentions of the parties regarding property ownership, even if those intentions were not formally documented. They are often established through evidence of joint contributions or agreements. E.g. (A) and another person (B) share a common intention that (B) should have a beneficial interest in an asset, and (B) has acted to his detriment in reliance of that intention. The leading case law in this area is derived from the seminal cases of Lloyds Bank v Rosset [1991] 1 AC 107, Stack v Dowden [2007] UKHL 17 and Jones v Kernott [2011] UKSC 53.
Factors considered by the Court
Common intention constructive trusts arise in two contexts:
- a) ‘Joint Names’ cases (where the property is registered in both parties’ names); or
- b) ‘Sole name’ cases (where the property is registered in one party’s name).
Baroness Hale in Stack v Dowden stated that the starting point where there is sole legal ownership is sole beneficial ownership and the starting point where there is joint legal ownership is joint beneficial ownership. The onus is therefore on the person seeking to show that the beneficial ownership is different from the legal ownership. Accordingly, in sole ownership cases the non-owner must show he has an interest and in joint ownership cases, the joint owner who claims to have other than an equal joint beneficial interest must discharge this burden.
After the Court has determined which category the matter falls into, it then has to look at the evidence to determine whether the parties intended for their beneficial interests to be different from their legal interests. It was held in Stack that “context is everything” and “each case will turn on its own facts.” Many more factors than financial contributions may be relevant to determining the parties’ true intentions. The following non-exhaustive list of factors are considered by the Court:
- Any advice or discussions at the time of the transfer which cast light upon the parties’ intentions then;
- The reasons why the home was acquired in the parities’ joint names;
- The reasons why (if it be the case) the survivor was authorised to give a receipt for the capital moneys;
- The purpose for which the home was acquired;
- The nature of the parties’ relationship;
- Whether the parties had children for whom they both had responsibility to provide a home;
- How the purchase was financed, both initially and subsequently;
- How the parties arranged their finances, whether separately or together or a bit of both;
- How the parties discharged the outgoings on the property and their other household expenses;
- The parties’ individual characters and personalities may also be a factor in deciding where their true intentions lay.
The Supreme Court in Jones v Kernott [2011] UKSC 53 upheld that, if a couple purchases a property in joint names, the presumption is that their beneficial interests in the property coincide with their legal estate. There is a high threshold to overcome, however a party can rebut the presumption by evidence concerning subsequent conduct in relation to the property, such as unequal contributions to the acquisition of the property under a mortgage. After the Supreme Court applied the above-mentioned factors in Jones v Kernott, it was deduced that “objectively from [the parties’] conduct” following from the initial joint registration, “there can be no presumption of joint beneficial ownership in a family home.” Accordingly, the Court held that each of Mr. Kernott and Ms. Jones held differing beneficial shares in the property that are reflective of their respective contributions to the house. This was determined to be 10% for Mr. Kernott and 90% for Ms. Jones.
Detrimental Reliance
It is crucial however that as well as proving the necessary common intention, the party who claims that their equitable interest has increased/or now exists must have acted to their determent in reliance of the intention. Therefore, any evidence must be supported by some detriment to justify intervention by equity.
The requirement for detrimental reliance was stated in Lloyds Bank v Rosset [1991] 1 AC 107, where Lord Bridge held that the partner asserting a claim to a beneficial interest must show that he or she has acted to his or her detriment or significantly altered his or her position in reliance on the agreement.
The recent case of Hudson v Hathway [2022] EWHC 631 (QB) reaffirms the requirement for detrimental reliance and therefore it remains an essential ingredient of a Common Intention Constructive Trust and a failure to plead and establish this is likely to be fatal to the claim.
Summary
In practice, cases relating to constructive trusts will turn heavily on the facts. A Judge will be tasked with ruling as to whether a constructive trust exists after hearing oral evidence from the parties, reviewing all other evidence in the matter and hearing submissions from Counsel.
Constructive Trusts and other trusts form a complex area of law. If you have any questions relating to this topic do not hesitate to get in touch with our Clerks.
****Disclaimer: The information contained herein is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.
Resources and Judgments
Lloyds Bank v Rosset [1991] 1 AC 107
