Graham Virgo: We know that the constructive trust in England
is considered to be an institutional constructive trust.
And the earlier discussion in the constructive trust chapter
identifies when the institutional constructive trust will be recognized.
The key feature of the institutional constructive trust
is that it arises by operation of law,
and not through the exercise of judicial discretion.
So what that means is, there are a number of recognized situations
where if the case falls within one of those situations,
a judge would have to conclude a constructive trust will be recognized;
and the judge has no discretion in that matter.
In a number of other jurisdictions around the world,
the constructive trust is recognized, but it's the remedial constructive trust.
Now actually what is meant by a remedial constructive trust
is a matter of some controversy, but essentially it is much more dependent
on the discretion of the judge, both as to when the constructive trust will be recognized
and what the consequences of recognizing the constructive trust might be.
So when considering the question of whether
the remedial constructive trust should be recognized in English law,
you need to consider whether it's appropriate for the proprietary consequences
of the constructive trust to be recognized,
or to be modified through the exercise of judicial discretion.
Now that really involves three key considerations,
because there are three key characteristics of recognizing a constructive trust institutionally,
having regard to the proprietary consequences of that trust.
First, it means that the beneficiary of the constructive trust
has an equitable proprietary interest
which trumps any of the claims of creditors of the trustee who are unsecured.
Secondly, if the constructive trust property increases in value
then the beneficiary of the trust gets the benefit of that increase in value.
And thirdly, if the trust property held on constructive trust
is received by a third party they are bound by the beneficiary’s equitable proprietary interest;
even if that third party was unaware that there was a constructive trust.
So when you’re considering whether the remedial constructive trust should be recognized,
or whether you are happy that English law recognizes the institutional constructive trust,
it's important to consider whether those three proprietary consequences
of recognizing a constructive trust are always defensible.
For example, is it always appropriate that the beneficiary of a constructive trust,
their claim to the trust property, trumps the claim of an innocent third party?
And as you’re considering those questions, you'll be able to work out whether
the remedial constructive trust should be recognized in English law.