Constructive trusts

A constructive trust is an equitable remedy resembling a trust (implied trust) 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.

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.

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