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A History of Constructive Trust

A History of Constructive Trust

The BC Court of Appeal in BNSF Railway v Teck Metals Ltd 2016 BCSC 350 the court delivered the following brief summary of the history of constructive trust as an equitable remedy:

Constructive trust. Academic writers seem to agree that this type of trust developed in an ad hoc fashion from the 17th century. D.W.M. Waters, M.K. Gillen and L.D. Smith, the authors of Waters’ Law of Trusts (4th ed., 2012), note that the types of obligations enforced by means of this trust “reflected the whole spectrum of remedies that were available in the equity jurisdiction”, although they were mainly concerned with what we would call fraud (very broadly defined), mistake and fiduciary relationships. (At 480.) Such trusts were invoked, for example, where necessary to preclude employees from retaining secret profits made by abusing their positions; to prevent the Statute of Frauds from being used to effect a fraud; or for ensuring that a stranger who intermeddled with a trust or assisted in a breach of trust would be required to account for any profits so obtained. The authors go on to state:

Effectively … English courts did not seriously examine what the constructive trust as a concept was for, and, without the direction that this inquiry would have given, they fell into describing what the position of a person is like, who is vested with property the benefit of which he is obligated to hold for another. It was like the express trust; there was a trustee and a beneficiary, there was trust property and duties with regard to that property which fell upon the trustee. The name, constructive trust, described the existence of an independent obligation; it neither created that obligation, nor was it itself a remedy. This was the approach taken to the constructive trust and it has survived to the present day in the more traditional common law jurisdictions of the Commonwealth. [At 481.]
25      In the twentieth century, however, courts in the U.K. began to take notice of the American trend, sparked by the publication of the 1937 Restatement on Restitution, towards the recognition of a “new head of restitutionary obligation”. (Waters’, at 484.) Beginning in the 1960s, the English Court of Appeal invoked the constructive trust in new situations to redress unconscionable or inequitable conduct. These cases culminated in Hussey v. Palmer, [1972] 3 All E.R. 744 (C.A.), to which I will return below.
26      In Canada, the development of the remedy of “constructive trust” began when the Supreme Court first turned to it as a proprietary device that could resolve, at least in some cases, the injustice inherent in the common law of matrimonial property. (See, e.g., Pettitt v. Pettitt, [1970] A.C. 777 (H.L.), Gissing v. Gissing, [1971] A.C. 886 (H.L), and the dissenting judgment in Murdoch v. Murdoch, [1975] S.C.R. 423.) Again, I do not propose to embark on an exposition of the voluminous academic and judicial writing on this subject in the 1980s and 1990s. I refer the reader to D.W.M. Waters, “The Constructive Trust in Evolution: Substantive and Remedial”, (1990-91) 10 Est. & Tr. J. 334; Waters’ Law of Trusts, supra, at ch. 11; Maddaugh and McCamus, supra, at §5:200; a case comment by Professor A.J. McClean on Pettkus v. Becker in (1982) 16 U.B.C. L. Rev. 155; M.M. Litman, “The Emergence of Unjust Enrichment as a Cause of Action and a Remedy of Constructive Trust”, (1988) 26 Alta. L. Rev. 407; David M. Paciocco, “The Remedial Constructive Trust: A Principled Basis for Priorities Over Creditors”, (1989) 68 Can. B. Rev. 315; John L. Dewar, “The Development of the Remedial Constructive Trust”, (1982-4) 6 Est. & Tr. Q. 312; Leonard I. Rotman, “Deconstructing the Constructive Trust”, (1999) 37 Alta. L. Rev. 133; Stuart Hoegner, “How Many Rights (or Wrongs) Make a Remedy? Substantive and Unified Constructive Trusts”, (1997) 42 McGill L.J. 437; and more recently, John Greiss, “Causes of Actions Supporting a Constructive Trust”, (2011) 38 Advoc. Q. 249.
27      The process began in earnest when Laskin J. (as he then was) dissented in Murdoch, forsaking “the often unconvincing search for a mythical common intention” to create property rights justifying an in rem remedy to Mrs. Murdoch. His approach was adopted by two others in Rathwell v. Rathwell, [1978] 2 S.C.R. 436. There, Dickson J. (as he then was), with Chief Justice Laskin and Spence J. concurring, reasoned:
The constructive trust, as so envisaged, comprehends the imposition of trust machinery by the court in order to achieve a result consonant with good conscience. As a matter of principle, the court will not allow any man unjustly to appropriate to himself the value earned by the labours of another. That principle is not defeated by the existence of a matrimonial relationship between the parties; but, for the principle to succeed, the facts must display an enrichment, a corresponding deprivation, and the absence of any juristic reason — such as a contract or disposition of law — for the enrichment … [At 455.]
28      Dickson J. also observed that in cases of this kind, the plaintiff must demonstrate a “causal connection” between his or her contributions (whether financial or otherwise) and the acquisition or existence of the disputed assets. That requirement had been met in Rathwell:
Analyzing the facts from the remedial perspective of constructive trust, it is clear that only through the efforts of Mrs. Rathwell was Mr. Rathwell able to acquire the lands in question. Assuming, arguendo, that Mrs. Rathwell had made no capital contribution to the acquisitions, it would be unjust, in all of the circumstances, to allow Mr. Rathwell to retain the benefits of his wife’s labours. His acquisition of legal title was made possible only through “joint effort” and “team work” as he himself testified; he cannot now deny his wife’s beneficial entitlement. [At 461.]
29      Finally, in Pettkus v. Becker, [1980] 2 S.C.R. 834, the minority view became that of the majority and the availability of a constructive trust as a remedy for unjust enrichment was put beyond doubt. I need quote only this paragraph from Dickson J.’s reasons:
The principle of unjust enrichment lies at the heart of the constructive trust. “Unjust enrichment” has played a role in Anglo-American legal writing for centuries. Lord Mansfield, in the case of Moses v. Macferlan put the matter in these words: “… the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money”. It would be undesirable, and indeed impossible, to attempt to define all the circumstances in which an unjust enrichment might arise …. The great advantage of ancient principles of equity is their flexibility: the judiciary is thus able to shape these malleable principles so as to accommodate the change in needs and mores of society, in order to achieve justice. The constructive trust has proven to be a useful tool in the judicial armory …. [At 847-8.]
(See also Sorochan v. Sorochan, [1986] 2 S.C.R. 38 at 47-50.)

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