LAW AND COMMERCE
trust ‘must still be found essentially in its remedial function which it has predominantly retained’.78 The learned judge concluded by characterising the constructive trust as a ‘remedial institution’—it is, in his opinion, both an institution and a remedy. Brushing terminology aside, the distinction could just be that an institutional constructive trust arises and exists by operation of law independently of a court order, whereas a remedial trust is an ad hoc exercise of discretion. But this is questionable. As argued by William Swadling, all constructive trusts ‘are nothing more than court orders’.79 In his view, the constructive trust is but a ‘fiction’ imposed by the courts so as to avail proprietary remedies to injured parties. This seems true on a closer analysis of the different classes of constructive trusts. If the institutional constructive trust was really about the vindication of property rights, then it must be shown that the claimant indeed had equitable ownership in the property—the court merely gives effect to this preexisting ownership right. In cases of unjust enrichment, such as mistaken payment, the claimant clearly intended, at least at the point of transfer, to pass both the legal and equitable ownership of the property to the defendant. It is clear in case law that a constructive trust only arises when there is unconscionability.80 So a constructive trust over a mistaken payment will only arise upon actual knowledge of the mistake.81 At the point that the trust arises, the claimant should, based on a hard-nosed property analysis, own an equitable interest in the property by operation of law. Yet how did the ‘fixed and ascertainable’ ownership in property transfer from the defendant to the claimant without any intent of the parties? Arguments that the claimant had retained equitable title upon the initial transfer or that the initial transfer had been conditional have been roundly rejected by the courts.82 It will be more doctrinally sound to view such a constructive trust as a court order, i.e. that the court recognises that full ownership had been transferred, but by virtue of subsequent unconscionability, it retrospectively orders the property to be held on trust. Similarly, in cases involving unauthorised profits from a fiduciary breach, such as bribes, it is clear that full ownership of the profits was intended to be transferred to the defendant. The defendant clearly intended to act
in breach (whether or not he/she was aware of the breach is a distinct issue), i.e. he/she clearly did not intend for the claimant to have equitable interest over the profits. It is the court which imputes to the defendant fiduciary an intention for any profits to be held on trust for the principal. It is an order of court that creates this trust, which would not have arisen otherwise. This is especially so if the profits have been used by the defendant to acquire a new proprietary right, such as ownership of a house83 or a car84. On a hard-nosed property analysis, it is difficult to rationalise how the claimant can assert a proprietary interest in a substitute property in which they previously had no interest. Borrowing the example of Andrew Burrows,85 if the claimant was entitled to trace from a pig to a horse to a car, it would be arbitrary to say that he/she has proprietary rights in the car merely because he/she owned a pig that is now represented by the car. If the claimant rightfully had equitable ownership over the money, should this proprietary right in the money not be strictly followed away from the defendant, rather than traced? By allowing the claimant to trace into substitute property, the courts are effectively redistributing proprietary rights by an order of court. There then seems to be no difference between tracing in equity and a remedial trust. The fact that constructive trusts are just remedial court orders clothed in a property law analysis is further evident when it comes to Binions v Evans contractual licences.86 There is never any intention of parties to create property rights in favour of the claimant since a contractual licence does not amount to a proprietary interest.87 The courts only impose a constructive trust when the defendant seeks to revoke the licence unconscionably. Unless this a unique case where the property right ‘lays dormant’ contrary to hard-nosed property law principles,88 it cannot be argued that such a trust is a vindication of such a right. Further, the courts only impose such a proprietary remedy (as opposed to a personal claim for damages) due to the special nature of land – the trust therefore arises due to policy reasons and not automatically due to a pre-existing property right. This is even clearer when it comes to constructive trusts in specifically-enforceable contracts.89 Such scenarios have been said to give rise to an unusual form of trust, 83 AG for Hong Kong v Reid [1993] UKPC 2, [1994] 1 AC 324. 84 London Allied Holdings (n 8).
78
ibid [6].
79 William Swadling, ‘The Fiction of the Constructive Trust’ (2011) 64(1) CLP 399, 432. 80 Westdeutsche (n 3) 705; Ching Mun Fong (n 6) [36]-[37]; Anna Wee (n 35) [182]. 81
60
ibid.
82 Westdeutsche (n 3) 706-708 (albeit in a case of resulting trust).
85 Andrew Burrows, The Law of Restitution (3rd edn, OUP 2011) 170. 86 Binions v Evans (n 48); Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044; Ashburn Anstalt v W J Arnold & Co [1989] Ch 1. 87
Law of Property Act 1925, s 1.
88 PP v Intra Group (n 24) [26]. 89 Lysaght v Edwards (n 48); Englewood Properties Ltd v Patel [2005] 1 WLR 1961.