As Millett LJ noted in Paragon Finance v DB Thakerar & Co [1998], Constructive trusts arise “whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another”. The starting point is that there must be a fiduciary relationship and while this might be a trustee/beneficiary relationship, it can also be solicitor/client director/company etc.
A fiduciary is not allowed to make a profit or have a conflict of interest per Lord Herschell in Bray v Ford [1896] and it is up to the courts to work out how this operates in each case. In some instances this can operate rather harshly (Boardman v Phipps [1967]) however other courts have taken something of a more flexible approach (Queensland Mines Ltd v Hudson [1978]).
While the exact status of unauthorised profits or bribes has been subject to much debate over the years (Lister & Co v Stubbs [1890]; Attorney General for Hong Kong v Reid [1994]; Sinclair Investments Ltd v Versailles Trade Finance Ltd [2011]), in the recent case of FHR European Ventures LLP v Cedar Capital Partners LLC [2014] it was decided that these are held on constructive trust for the principal.
Where the technical requirements of statute would allow a defendant to perpetrate fraud, constructive trusts can be used to avoid this outcome; Rochefoucauld v Boustead [1897]. However this cannot be used to interfere with the legal rights of an individual; Midland Bank Trust Co Ltd v Green [1981].
Constructive trusts are also used when property is transferred (Chinn v Collins [1981]) even where the transfer doesn't go through as in the Re Rose [1952] scenario. Joint ventures into land can also give rise to a constructive trust as in Pallant v Morgan [1952].
Common intention constructive trusts are common in familial situations and require an agreement prior to the purchase as well as proof of common intention as per Lloyds Bank v Rosset [1991]. As Lady Hale noted in Stack v Dowden [2007] the courts will look to the conduct of the parties when working out the common intention.
Finally if a non-trustee interferes with trust property or the workings of the trust they can be considered a constructive trustee (or ‘trustee de son tort’ (trustee of his wrong)); Mara v Browne [1895].
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