A constructive trust is an equitable remedy imposed by a court to benefit a party that has been wrongfully deprived of its rights due to either a person obtaining or holding a legal property right which they should not possess due to unjust enrichment or interference, or due to a breach of fiduciary duty, which is intercausative with unjust enrichment and/or property interference. It is a type of implied trust (for example, it is created by conduct, not explicitly by a settlor).
Events generating constructive trusts.
Breach of fiduciary duty.
In a constructive trust the defendant breaches a duty owed to the plaintiff. The most common such breach is a breach of fiduciary duty, such as when an agent wrongfully obtains or holds property owned by a principal. A controversial example is the case of Attorney-General for Hong Kong v Reid, in which a senior prosecutor took bribes not to prosecute certain offenders. With the bribe money, he purchased property in New Zealand. His employer, the Attorney-General, sought a declaration that the property was held on constructive trust for it, on the basis of breach of fiduciary duty. The Privy Council awarded a constructive trust. The case is different from Regal (Hastings) Ltd v Gulliver, because there was no interference with a profit-making opportunity that properly belonged to the prosecutor.
Being a Privy Council decision, Reid did not overrule the previous decision of the Court of Appeal of England and Wales in Lister v Stubbs which held the opposite, partially because a trust is a very strong remedy that gives proprietary rights to the claimant not enjoyed by the defendant's other creditors. In the event of the defendant's insolvency, the trust assets are untouchable by the general creditors. Supporters of Lister suggested that there was no good reason to put the victim of wrongdoing ahead of other creditors of the estate. There was a tension in English law between Lister and Reid which was highlighted in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd. The United Kingdom Supreme Court subsequently overruled Sinclair in FHR European Ventures LLP v Cedar Capital Partners LLC, holding that Lister was no longer good law.
A resulting trust is an implied trust that comes into existence by operation of law, where property is transferred to someone who pays nothing for it; and then is implied to have held the property for benefit of another person. The trust property is said to "result" or jump back to the transferor (implied settlor). In this instance, the word 'result' means "in the result, remains with", or something similar to "revert" except that in the result the beneficial interest is held on trust for the settlor. Not all trusts whose beneficiary is also the settlor can be called resulting trusts. In common law systems, the resulting trust refers to a subset of trusts which have such outcome; express trusts which stipulate that the settlor is to be the beneficiary are not normally considered resulting trusts.
The beneficial interest results in the settlor, or if the settlor has died the property forms part of the settlor's estate (intestacy). It remains with the person and Re Vandervell case shows that only the beneficial interest disappears but not the beneficiary interest.
