CONSTRUCTIVE TRUSTS

• Published date: 01 December 2011
• Citation: (2011) 23 SAcLJ 250
• Author: Tsun Hang TEY BCL (Oxford), LLB (KCL), AKC; Barrister (Gray‘s Inn), Advocate & Solicitor (Singapore), Advocate & Solicitor (Malaya); Associate Professor, Faculty of Law, National University of Singapore.
• Date: 01 December 2011

Deciphering and Distinguishing “Institutional” and “Remedial”

This article attempts to decipher and distinguish institutional constructive trusts and remedial constructive trusts. It argues that the remedial constructive trust is workable as a principled application of unconscionability as a doctrine. The institutional constructive trust, on the other hand, looks to something more than unconscionability. There must be circumstances pointing to a relationship that provided for impairment of title or that there was a common intention to share which impairs title. Unconscionability would then stem from the fact that the defendant is disavowing the prior relationship or agreement, and instead wishes to insist on his strict legal rights. It argues that it is not acceptable to conflate the two concepts together to introduce some form of remedial discretion.

I. Introduction

1 It is important to examine and unpack the term “remedial”, so as to accurately discern the nature of the discussion. It is of no use to baldly assert that English trust law recognises, or does not recognise, a remedial constructive trust, if one does not even begin to define what “remedial” means. Definitional difficulties are not without a practical aspect; in the latest case from the House of Lords,1 Lord Scott, in the context of proprietary estoppel, held that there are situations where a “remedial constructive trust” would operate.2 His Lordship appears to have reclassified the common intention constructive trust into a remedial constructive trust, when the remedial constructive trust was

held to have been “recognised at least since Gissing v Gissing”.3 Academic comment has questioned the usage of the term “remedial” in this context; it has been variously described as the “application of principles relating to common intention constructive trusts”,4 and as “unnecessarily invit[ing] fresh controversy”.5

2 From the outset, it is asserted that the term “remedial” in this context refers to the granting of a constructive trust remedy by the court for remedial purposes per se, there being no other reason why it should exist. With all due respect, this is in sharp contrast to the approach taken by Professor Tang Hang Wu, which is examined, and distinguished, below.6

3 The term “remedial”, in one sense, simply refers to that of a remedy. Tang uses this definition as a lynchpin to show why English trust law recognises a remedial constructive trust. Tang asserts that “[a]ll forms of constructive trust are in a sense remedial”.7 This stemmed from the opinion that the historical basis for the distinction was a false premise. Tang traced the origins of the current dichotomy to Roscoe Pound‘s article:8

An express trust is a substantive institution. Constructive trust, on the other hand, is purely a remedial institution. As the chancellor acts in personam, one of the most effective remedial expedients at his command was to treat a defendant as if he were a trustee and put pressure upon his person to compel him to act accordingly.

4 Tang asserts that Pound was “writing purely about US law and was not engaged in a comparative analysis of English and US law. Furthermore, Pound did not purport to make a distinction between an

institutional and remedial constructive trust”.9 He later traces the purported mistaken interpretation to Ronald Maudsley‘s article:10

Modern American legal thought thinks more of a constructive trust as a remedy, but admits that occasionally it can be an institution. English law has always thought of a constructive trust as an institution, a type of trust.

5 Having established that there never was a dichotomy to begin with, and that both “the express and the constructive trust were institutions”,11 Tang then argues that “the terminology of ‘institutional constructive trust‘ should be abandoned in Singapore”,12 because it “conceals the real question” as to “what is the appropriate methodology for dealing with the future development of the law”.13 The term “institution” merely reflects recognition of certain established categories where a constructive trust would be imposed,14 and may even mean that the law “will never develop new categories of the constructive trust” [emphasis in original].15 Thus, it is better to abandon such old labels and focus on “defensible reasons”, rather than “dogmatic assertion[s]” in delimiting the content of the constructive trust.16

6 It is useful to consider next the Australian High Court case of Muschinski v Dodds, given that Tang also cites this case in support of there being no basis for having such a dichotomy.17 The passage that Tang relies upon was by Deane J:18

Where an equity court would retrospectively impose a constructive trust by way of equitable remedy, its availability as such a remedy provides the basis for, and governs the content of, its existence inter

partes independently of any formal order declaring it or enforcing it. In this more limited sense, the constructive trust is also properly seen as both ‘remedy‘ and ‘institution‘. Indeed, for the student of equity, there can be no true dichotomy between the two notions.

7 However, that is not the end of the matter. Deane J‘s speech as a whole actually provided two ways of understanding the term “remedial”. The above passage was his Honour‘s conclusion as to the debate on the dichotomy.19 Earlier, his Honour held:20

In a broad sense, the constructive trust is both an institution and a remedy of the law of equity. As a remedy, it can only properly be understood in the context of the history and the persisting distinctness of the principles of equity that enlighten and control the common law. The use or trust of equity, like equity itself, was essentially remedial in its origins … There is, however, a more limited sense in which there is some superficial plausibility in the notions of ‘institution‘ and ‘remedy‘ as competing characterizations of the constructive trust. If ‘institution‘ is understood as connoting a relationship which arises and exists under the law independently of any order of a court and ‘remedy‘ is defined as referring to the actual establishment of a relationship by such an order, the catchwords of ‘institution‘ and ‘remedy‘ do serve the function of highlighting a conceptual problem that persists about the true nature of a constructive trust.

8 Thus, there appear to be two ways in which “remedial” can be understood. “Remedial” can either mean “remedy”, and in that sense both Deane J and Tang agree that there is no real dichotomy because the constructive trust is essentially a remedial measure per se; or it can mean a remedy given to vindicate a pre-existing relationship established at law.

9 Professor Peter Birks attempted to unpack the term “remedial” even more thoroughly. He discerned five different meanings of the word “remedy” and “remedial constructive trust”.21 Birks defined the term “remedial” to mean “an action or actionability”, “a right born of a wrong”, “a right born of grievance or injustice”, “a right born of the order or judgment of a court”, or “a right born of a court‘s discretionary

order”.22 It is useful to attempt to analyse Birks‘ approach, for Tang also relied upon Birks‘ approach to show the limitations of this dichotomy.

10 For present purposes, it is useful to examine the fourth and fifth meanings of the word “remedial”, for Birks was quick to dismiss the first three meanings as being either “so imprecise that it cannot be used as an instrument of analysis”,23 or that the latter two meanings were already sufficiently precise without the word “remedial”; “nothing could be achieved by insisting on the adjective ‘remedial‘ as justified by these two meanings of that word”.24

11 As for the fourth meaning, Birks described it as “the pronouncement of the court made on a non-discretionary basis … the role of the declaration is not properly speaking creative. If it finds for the plaintiff, it recognises and confirms the effect of the happening of earlier facts”.25 He cites Roy Goode‘s opinion that there are cases where the “court‘s declaration is creative ex nunc, not simply confirmatory ex tunc”.26 This would happen in cases where the defendant owes the asset in question, but the plaintiff “has a personal right to have it transferred to him: a ius in personam ad rem adequirendam”.27 Birks concedes that this might indeed be the case, but a “remedy” in that sense, and hence a “remedial constructive trust” of that definition, would never occur, because “[t]he premise is a personal right to have a res transferred”, and equity, having always regarded as done that which ought to be done, would have turned “the promissory into a trustee at once”.28 Thus, when the court‘s role is to recognise the trust when the maxim operates, and that it is “almost impossible to envisage facts on which an English court would exclude the operation of the maxim”, the

conclusion would be that this would only be a theoretical exercise with little practical effect.

12 With that in mind, Birks expounded upon the fifth meaning, which proved to be the most interesting one:29

‘[R]emedy‘ in the sense of judgment is finally divorced from ‘right - and from the maxim … - by the court‘s assertion of a strong discretion. If a trust is created by the court in the exercise of a strong discretion, that trust certainly deserves the name ‘remedial‘ - that is, ‘judgment-created‘.

13 Birks observed that this was the meaning of the term “remedial” as described in Westdeutsche Landesbank Girozentrale v Islington London Borough Council, where Lord Browne-Wilkinson held:30

Under an institutional constructive trust, the trust arises by operation of law as from the date of the circumstances which give rise to it: the function of the court is merely to declare that such trust has arisen in the past. The consequences that flow from such trust having arisen (including the possibly unfair consequences to third...