Monday, 7 June 2010

High Court comments on constructive trusts

The High Court has recently commented about the usefulness of constructive trusts. In the White City litigation, which pitted a tennis club against tennis legend John Alexander, the old White City tennis centre was being redeveloped.

The tennis club had been unsuccessful at trial, then appealed to the NSW Court of Appeal. That court had imposed a constructive trust over the property in favour of the club. This had the effect of excluding John Alexander's company and a property company. John Alexander's company appealed to the High Court.

The High Court in an unanimous judgment of Chief Justice French and Justices Gummow, Hayne, Heydon and Kiefel upheld the appeal. The court criticised the NSW Court of Appeal for imposing a constructive trust, without recognising the rights of other parties.

Most significantly, the court held:

A constructive trust ought not to be imposed if there are other orders capable of doing full justice.
This is one sentence that is likely to be quoted regularly in the future.

Constructive trusts are important in family law. They have been an important feature of family law, especially in de facto cases, since 1987, following the seminal decision of the High Court in Baumgartner v. Baumgartner.


Types of trusts


There are four types of trusts that courts commonly recognise which are directly relevant to family law:
  • an express trust - examples are the "Fred Smith Family Trust" or a bank account stated as "Mary Smith as trustee for Esmerelda Smith";
  • an implied trust- where the court says that a trust was intended, due to the actions of the parties and is therefore implied;
  • a resulting trust - where the conduct and intentions of the parties is such that a trust is the result of the conduct and intentions; and
  • a constructive trust- where to ensure that there is not an unfair outcome, for example by way of unconscionable behaviour, the court imposes or constructs a trust. A constructive trust is different from the other types, as it is not dependent on intentions or conduct, but constructed by the court.
Baumgartner v. Baumgartner

The de facto wife sought a property settlement. There was no legislation in place to allow a property settlement between de facto spouses. The house was in the name of the de facto husband. During the course of the relationship, the de facto husband had made home payments, and the de facto wife had paid for groceries. The de facto husband therefore asserted that the de facto wife had made no payments towards the home and had no interest in the home.

The High Court held that it was unconscionable for the de facto wife not to have an interest in the home, and imposed a constructive trust.