Constructive Trust - Events Generating Constructive Trusts

Events Generating Constructive Trusts

In a constructive trust the defendant breaches a duty owed to the plaintiff. The most common such breach is a breach of fiduciary duty. 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) because there was no interference with a profit-making opportunity that properly belonged to the prosecutor.

This area is highly controversial and may not represent the law in England because of the previous Court of Appeal case of 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 v Stubbs suggest that there is no good reason to put the victim of wrongdoing ahead of other creditors of the estate. However, being a Privy Council decision Reid's case did not overrule the decision in Lister v Stubbs, which is still good law in England and Wales, but not in some of its former colonies, such as Australia. There is a tension in English law between Lister and Reid which has been highlighted in the recent cases such as Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd.