Equity has developed much more extensive proprietary remedies to enable the claimant to vindicate his or her equitable property rights. These remedies are only available where the claimant can establish an equitable proprietary base in the property retained by the defendant. Further, the award of these remedies is a matter of right rather than judicial discretion.[1]

(i) Constructive Trust

The court may recognize that the defendant holds the property in his or her possession on trust for the claimant. Where the defendant was an express trustee, then the substitute property will be held on the same trust.[2] But where the defendant is a third-party recipient of the trust property or substitute property, this property will be held on constructive trust, since it arises by operation of law, even though the original equitable proprietary interest arose under an express trust,[3] because the recipient of the property will not be subject to the same duties as the express trustee. The effect of recognizing that the property is held on constructive trust will be that the defendant becomes liable to transfer all, or a proportion, of the property to the claimant.

(1) Transfer of Property

Where the claimant can show that he or she has an equitable proprietary interest in property that is in the possession of the defendant, the court may declare that the property is held on constructive trust for the claimant and it will order the defendant to transfer this property to the claimant.[4]

(2) Proportionate Share

A constructive trust may also be imposed where the claimant is considered to have an equitable proprietary interest in a proportionate share of the property that is in the defendant’s possession. This remedy will be more attractive to the claimant than an equitable charge where the property has increased in value.

When determining whether the claimant is able to claim a proportionate share of a mixture, it has been necessary to distinguish between cases in which the defendant is a fiduciary or is an innocent volunteer.

(a) Fiduciary

In Foskett v McKeown[5] the House of Lords recognized that, by virtue of the principle that a fiduciary should not be allowed to profit from their position, it followed that where a trustee wrongly uses trust money to provide part of the cost of acquiring an asset, the balance coming from the trustee’s own money, the beneficiary can elect between claiming a proportionate share of the asset and enforcing a charge against the asset to secure his or her personal claim. This election is available regardless of whether the trustee mixed the trust money with his or her own property and then paid for the asset from the mixture, or the trustee part-paid for the asset from his or her own funds and made a separate payment from the trust fund. The beneficiary will claim a proportionate share where the value of the asset has increased, so that the claimant will gain a proportionate share of the increased value. So, for example, if the asset were purchased for ?1,000, and the trust fund contributed ?750 and the trustee ?250, the beneficiary would be able to claim three- quarters of the value of the asset. So, if the asset had increased in value to ?2,000, the beneficiary would be able to claim a share worth ?1,500. The claimant would be able to compel the trustee to sell the asset and transfer that amount to him or her.

This remedy of a proportionate share was awarded in Foskett v McKeown. Since the claimants were able to trace two of the five premiums into the death benefit, it was held by a majority that they were entitled to receive two-fifths of the death benefit. Whether it was appropriate to award the claimants such a remedy is a matter of some controversy. What is the just result in a case such as this, in which both claimants and defendants were innocent of any wrongdoing? The judges themselves expressed divergent views as to where the justice of the case lay on the facts.[6] It is certainly fair that the claimants should recover the amount that had been misappropriated from the trust and which was used to pay two of the premiums.[7] But should they get more than this? The claimants had been the victims of a criminal misappropriation of trust property, which had been used to make an involuntary contribution to the insurance policy. The children had made no such contribution and it was their father who committed the crime.15 But should the sins of the father be visited upon the children? Is it of any use even to consider such matters? Lord

Hope[8] was willing to consider the terms of the insurance policy, the conduct of the parties, and the consequences to them of allowing and rejecting the claim, in order to determine whether it was fair, just, and reasonable for the claimant to be awarded a proportionate interest in the proceeds of the insurance policy. But how are such factors to be weighed against each other? If such an approach had been adopted by all of the judges in the case, it is not clear what the decision would have been. The introduction of a vague discretion that is not ‘directed by principled analysis of the facts’ is unworkable;[9] it is no way in which to determine how property rights should be recognized and vindicated.

The awarding of a proportionate share in Foskett v McKeown has been criticized, by Berg especially,[10] not because the remedy was excessive, but because it did not go far enough. He considers that the claimants should have received the whole of the death benefit, by virtue of the policy that there should not be any incentive for trustees wrongfully to mix trust funds with their own. So a trustee, or anybody who claims through a trustee such as the children in this case, should be required to disgorge the whole of the benefit that they had wrongfully obtained. But this argument fails to distinguish between claims grounded on the commission of the wrong of a breach of trust, in which disgorgement of all profits is the norm subject to the award of equitable allowances, and claims grounded on the vindication of property rights, in which the law is essentially concerned only with identifying value in property and other policies have no part to play.

(b) Innocent Volunteer

Where the claimant’s money has been mixed with that of an innocent volunteer and the mixed fund has been used to purchase an asset, the claimant and the innocent volunteer will both have equitable interests in the asset in proportion to the value of their contri- bution.[11] In such circumstances, the claims of both parties are equal, so it is not appropriate for one to have priority over the other. The recognition that the parties share the asset proportionately means that any increase in the value of the property will be shared between them. Where the asset has fallen in value, this loss will be shared equally between the contributors in proportion to their contribution and the claimant will not be able to elect for a charge instead.[12]

(c) Fiduciary and Innocent Volunteer

Where a trustee, for example, has misappropriated trust money from two trusts, mixed this with his or her own money, and then used the mixture to purchase an asset, following the decision of the House of Lords in Foskett v McKeown, all of the contributors will share the property in proportion to their own respective contributions.

(d) Remedial Constructive Trust

If the remedial constructive trust[13] was recognized in English law, the proprietary consequences of recognizing the constructive trust might be modified, but in a principled way, so that the claimant might not be given priority over any of the other creditors of the defendant or be able assert a proprietary claim against the innocent volunteer recipient of property in which the claimant has an equitable proprietary interest. The remedial constructive trust has, however, not yet been recognized in England and was rejected by the Supreme Court in FHR European Ventures LLP v Cedar Capital Partners LLC.2

  • [1] Foskett v McKeown [2001] 1 AC 102, 109. Although note the analysis of the modified constructive trust,
  • [2] at p 605, above. 9 As in Foskett v McKeown, ibid, itself.
  • [3] But see, to the contrary, Lord Millett, ‘Proprietary Restitution’, in S Degeling and J Edelman (eds), Equityin Commercial Law (Sydney: Lawbook Co, 2005), 315-16. See also Foskett v McKeown [2001] 1 AC 102, 108(Lord Browne-Wilkinson).
  • [4] Boscawen v Bajwa [1996] 1 WLR 328, 334 (Millett LJ).
  • [5] [2001] 1 AC 102, 131 (Lord Millett).
  • [6] Compare Foskett v McKeown [2001] 1 AC 102, 115 (Lord Steyn) with [1998] Ch 265, 303 (Morritt LJ)and [2001] 1 AC 102, 140 (Lord Millett).
  • [7] Foskett v McKeown [2001] 1 AC 102, 119 (Lord Hope). 15 Ibid, 112 (Lord Steyn).
  • [8] Ibid, 120.
  • [9] See Sir R Walker, ‘Tracing after Foskett v McKeown [2000] 8 RLR 573, 575. See also Foskett v McKeown[2001] 1 AC 102, 115 (Lord Steyn).
  • [10] A Berg, ‘Permitting a Trustee to Retain a Profit’ (2001) 117 LQR 366.
  • [11] Edinburgh Corporation v Lord Advocate (1879) 4 App Cas 823,841 (Lord Hatherley). See also ReHallett’sEstate (1880) 13 Ch D 696.
  • [12] Re Diplock’s Estate [1948] Ch 465, 532; Foskett v McKeown [2001] 1 AC 102, 109 (Lord Browne-
  • [13] Wilkinson) and 132 (Lord Millett). 21 See p 603, above.
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