Constructive trusts 

A constructive trust is imposed by the court, irrespective of intention, where it would be unconscionable for the holder of property to assert full beneficial ownership. It is equity's most flexible institution, and the point at which Australian law is most distinct.

Institutional or remedial

The distinction is the organising question.

An institutional constructive trust is treated as arising when the relevant events occur; the court declares it. Property rights, including those of third parties and creditors, are taken to have existed from that time.

A remedial constructive trust is imposed by the court as a remedy, and the court controls the date from which it operates and the form it takes.

Australia recognises both. That is a genuine divergence: England has resisted the remedial constructive trust, while Canada embraced it broadly. The Australian position is better stated as recognition with restraint — a remedial constructive trust is available, but it is a remedy of last resort, to be imposed only where other remedies, particularly a personal money remedy such as equitable compensation or an account, are inadequate. Courts also weigh the effect on third parties and unsecured creditors, and may declare the trust to operate only from the date of judgment to protect them.

The established categories

• Property acquired in breach of fiduciary duty. A fiduciary who acquires property or an unauthorised profit by virtue of the position holds it on constructive trust, giving the principal a proprietary claim and priority on insolvency. That this extends to bribes and secret commissions is accepted in Australia.
• Breach of confidence, where information is misused to acquire property.
• The specifically enforceable contract. A vendor under a contract for the sale of land holds on constructive trust for the purchaser once the contract is specifically enforceable — a qualified trusteeship, the vendor retaining rights until completion.
• The joint endeavour principle. Where parties pool efforts or assets in a joint endeavour, the endeavour fails without attributable blame, and one party would otherwise retain a disproportionate benefit contributed by the other, equity intervenes. This is the central Australian doctrine for failed domestic relationships and for informal commercial ventures, and its foundation is unconscionable retention rather than any agreement between the parties.
• Common intention, where the parties held a common intention as to beneficial ownership and one acted to their detriment on it. English law leaned heavily on this; Australian law has preferred the joint endeavour route.
• Estoppel, where relief takes proprietary form.
• Knowing receipt and knowing assistance, below.
• Unconscionable dealing with property, including a purchaser who takes with notice of an earlier interest, or the imposition of a trust to prevent a statute being used as an instrument of fraud — as with secret trusts.

Domestic property disputes

The joint endeavour principle, from Muschinski v Dodds (1985) 160 CLR 583,¹ does the work here. The enquiry is what each party contributed — financial and non-financial, including domestic work and care — over the life of the relationship, and what it would be unconscionable for one party to retain when it ends. A resulting trust measured by contributions to the purchase price will often be the starting point but rarely the answer.

Two practical qualifications. First, most married and de facto couples in Australia will proceed under the property provisions of the family law legislation, whose discretionary regime is broader; equitable claims matter where those provisions do not apply, where a third party's interest is in issue, or on insolvency or death. Second, the constructive trust here is proprietary, and its effect on creditors is part of why it is approached with restraint.

Third party liability

A stranger to the trust may be personally liable in equity:

• Knowing receipt — receiving trust property for their own benefit with knowledge of the breach; and
• Knowing assistance — assisting in a dishonest and fraudulent design on the part of the trustee or fiduciary, with knowledge.

Australian law has kept the traditional requirement of a dishonest and fraudulent design for assistance, and has not adopted the broader unconscionability-based receipt liability developed elsewhere. The degree of knowledge required is analysed through the familiar gradations, running from actual knowledge to knowledge of circumstances that would put an honest and reasonable person on inquiry; where exactly the line falls for receipt is not uniformly settled.

Applying this in a problem question

1. Identify the category first. A constructive trust is not a general remedy for unfairness.
2. Ask whether the claim is institutional or remedial in character.
3. If remedial, address adequacy of other remedies and the position of third parties and creditors expressly.
4. For a failed relationship, use the joint endeavour principle and account for non-financial contributions.
5. Consider whether a personal remedy would do justice; if it would, say why a proprietary one is still warranted.

Where the authority sits

Case law, with a distinctively Australian line on the joint endeavour principle and on the restrained availability of remedial constructive trusts, and the family law legislation governing most property disputes between couples.