Often people will discuss ‘trusts’ in conjunction with business or family arrangements, but what does that really mean, and perhaps more importantly, are all trusts created equal?
For the purposes of this article, we will focus on one type of trust, the constructive trust. Constructive trusts are interesting in that they can come into existence without a trust instrument and often can be imposed as a form of remedy for wrongs committed.
Constructive trusts are either the result of a ‘joint endeavour’ or a ‘common intention’.
To establish a joint endeavour constructive trust, one must persuade a court that:
- There is the existence of a joint relationship or endeavour in which the expense associated with that endeavour is shared for the benefit of all parties involved. Often this will involve the purchase of an asset for the agreed purpose or ‘endeavour’.
- The joint relationship or endeavour has come to a premature end without a party having committed a wrong.
- It would be unconscionable for the party who has received the overall benefit of the joint endeavour to retain that benefit where it knew the asset was purchased for the sole purpose of the joint endeavour.
The leading case concerning a joint endeavour constructive trust is Muschinski v Dodds [(1985) 160 CLR 583]. In this case, the court determined the respondent’s conduct was unconscionable on the basis that he intended to retain the benefit of a full one-half interest in a residential property without making any concessions for the fact that the appellant contributed a large portion of the purchase price. The court concluded that the respondent’s conduct was particularly reprehensible as there had been no arrangement between the parties as to how they might divide their interests in the residential property should their relationship come to an end.
To establish a common intention constructive trust, one must persuade a court that:
- There is an actual or inferred common intention as to the parties’ beneficial interest in a property.
- One party (or more) has relied on that common intention to their detriment, whether financial or otherwise.
- It would be inequitable to deny the suffering party their interest in the property.
An uncomplicated example of a common intention trust can be seen in the case of Ogilvie v Ryan [(1976) 2 NSWLR 504]. The plaintiff was able to assert a beneficial interest in a residential property on the basis that she had moved into the plaintiff’s deceased father’s house on the understanding that if she did so and cared for the plaintiff’s father, she would be entitled to live in the house for the remainder of her life.
It is important for individuals to carefully consider the potential existence of constructive trusts when a business or family relationship breaks down. Even better, if business partners or family members can agree on what should happen in the event of a relationship breakdown, it will make the end process (if necessary) less adversarial and potentially more profitable for those involved.
If you or anyone you know would like to obtain legal advice concerning constructive trusts, contact Rouse Lawyers today.
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