X, the plaintiff, is a 67-year-old widow. She was born in Poland and lived there until 2005. Her husband died in 1995. She has a son and a daughter. Y, the defendant, is the uncle of the plaintiff. He is now at least 90 years of age, suffering from dementia and unable to give evidence. Y’s wife died a considerable time ago. X’s evidence was not contradicted. The plaintiff's case is that at the defendant's request she gave up her life in Poland and came to live with the defendant in his home at Greystanes in Sydney. She says she did so because of two reasons. First, the defendant promised her that she could live in his house for the rest of her life in return for caring for him. Secondly (and of most importance for her decision) life in Poland was very tough for X. Early in 2012 the defendant's sons evicted her from the house (as Y has now entered a nursing home) and entered into a contract for the sale of the property with Z for $460,000. In 2010, X got a loan of $100,000 from Acme Ltd. As way as security for this loan she gave Acme Ltd an interest in all property which she owned in 2010. That is, if she does not repaid the loan on time, Acme Ltd can sell her property. Although she didn’t really suffer much detriment in the move from Poland (for example, her total moving costs were about $10,000) she demands in court what she was promised, a life interest in the property. Y has a neighbour W. W does not want X to stay because she doesn’t like her.
As result of her not repaying the loan on time, Acme Ltd now wants to enforce the security, that is, sell all of her property.
Questions
Question 1 (80 marks) explain the remedy X will be given by the court for this estoppel,
Question 2 (10 marks) say what is the interest of Acme to the remedy that will be ordered by the court
Question 3 (10 marks) distinguish it from the remedy she would receive if the same promise by Y was contained in a valid contract
Feedback on the 2012 exam
Some of the facts are loosely based on the case of Ronowska v Kus [2012] NSWSC 280 (22 March 2012). For estoppel need (at least) 3 elements (the exact number of elements isn’t that important-eg Dal Pont lists 4 elements, Brennan in Waltons (1988) 164 CLR 387 at 428-429 lists 6 elements- what is important is that essentially all the same things are covered in the lists of elements)
1. representation,
2. reliance, and
3. detriment
If the elements are satisfied, then attention turns to the remedy.
The promise by Y need not be the sole cause of the reliance, it has to be a cause of the reliance.
Question 1 The real issue here is remedy for the estoppel, not the estoppel itself (but most students did discuss in detail the estoppels; no one was directly penalised for this but it did cut into students’ time to answer the actual question). The question wasn’t “Is there an estoppel?” but rather it was “explain the remedy X will be given by the court for this estoppel”. It is important to answer the actual question. To do this well, a brief consideration of the elements of estoppel (especially the detrimental reliance) might have been useful (as the primary right and the remedy are linked) but this consideration should have been brief as quite a few issues still needed to be addressed.
Clearly X wants a constructive trust to protect her life interest but will she get it? Mason CJ (in Waltons and Verwayen (1990) 170 CLR 394) would see the purpose of the remedy as reversing the detriment but Deane (in Waltons and Verwayen) would see it as promise fulfilment. In the light of Giumelli (1999) 196 CLR 101 what would the HC do today? Basically, start with Deane J’s remedy and then move it as justice requires. Quite a few students ended their discussion of the remedy at that point. This was unfortunate, as important issues still needed to be addressed.
Using Giumelli as a rough analogy here, perhaps the interest of Z would argue against X getting the property (ie against a constructive trust being awarded). But what interest does Z have? She WANTS a constructive trust but will she get want she wants? The big issue here is the role of third party’s interests in the award of remedies? The HC has examined this issue extensively, particularly with regard to the remedy which might be ordered here, the constructive trust. When is a third party’s interest “relevant” to the court’s order? Can any interest be relevant (for example, would W have a relevant interest)? A FULL discussion and analysis here of Giumelli and John Alexander and their discussion of the role of third parties was essential. Not many students did this discussion and analysis in detail.
The High Court has suggested that the interest of X is as a beneficiary of a constructive trust (see Mason J & Jacobs J in Chang (1976) 137 CLR 177, extracted in Heydon and Leeming at pp165-167. Further, the interest of Acme may also be relevant to the award of the remedy for this estoppel. But the interest of Y does NOT seem important to the court’s decision making regarding the remedy.
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Note well: The following information is provided more as an educational tool for students that as any template for any model answer. Much of this information was not known by the students and they weren’t assessed by it per se but a lot of it directly arises from issues dealt with in Giumelli and John Alexander cases (really the John Alexander case is merely an application and reaffirmation of Giumelli).
The Australian constructive trust is primarily, but not exclusively, remedial.[1] This is the consequence of High Court decisions such as Muschinski,[2] Bathurst,[3] Giumelli[4], Farah[5] and Bofinger.[6] Now, in John Alexander the High Court has attempted to explain what is the impact when the remedial constructive trust is claimed when the interest of a third party is involved.
The literature on the constructive trust has spent an inordinate amount of time on the issue of the whether the constructive trust is institutional or remedial, particularly the question of employing property as a remedy. It is important to appreciate the fact that the term “constructive trust” is not monolithic.[7] Further, according to Jacobs’ Law of Trusts in Australia,[8] the established categories of the trust are not uniform in the sense that its incidents vary. It possesses several different meanings[9]. The current debate in the High Court seems to have gone beyond this issue, as having decided that most constructive trusts are predominately remedial.[10] In Bofinger v Kingsway Group Limited[11] the unanimous High Court, after citing Gleeson CJ, McHugh, Gummow and Callinan JJ in Giumelli v Giumelli[12], held
In Jones v Southall & Bourke Pty Ltd [(2004) 3 ABC (NS) 1 at 17. See also Giumelli v Giumelli (1999) 196 CLR 101 at 119-120 [31]-[32] and the form of the orders made at first instance by McLelland J in United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 820-822.], after reviewing the authorities, Crennan J said that they:
"make plain [that] the term 'constructive trust' covers both trusts arising by operation of law and remedial trusts. Furthermore, a constructive trust may give rise to either an equitable proprietary remedy based on tracing or, whether based on or independently of tracing, an equitable personal remedy to redress unconscionable conduct. The equitable personal remedies include equitable lien or charge or a liability to account."
Earlier in her reasons her Honour had noted that the term "constructive trust" had been applied to include the enforcement of the obligation of a defaulting fiduciary to make restitution by a personal rather than a proprietary remedy [(2004) 3 ABC (NS) 1 at 16].
Distilling this it appears that the main meanings, with sub-meanings, within the term “constructive trust” are
1. a remedy for the breach of certain legal primary rights,
a. a personal remedy, and
b. a proprietary remedy
and
2. a property based institution, very similar to the express and resulting trusts
a. a proprietary based institution, and
b. personal liability based institution.
As can be seen, constructive trust is an umbrella term; that is, it is a term with several different meanings. But frequently the term “constructive trust” is used interchangeable, causing confusion. The dominant form of the constructive trust is the first. The observation by Young, Croft and Smith in On Equity[13] that “the remedial constructive trust is the most common form of constructive trust.” is correct.
Ford and Lee in Principles of The Law of Trusts[14] define the remedial constructive trust as “a declaration by a court that a constructive trust exists but in respect of which there is uncertainty as to whether the court would declare a constructive trust or give some other equitable remedy”.[15]
The constructive trust is a remedy, albeit a very special remedy because usually it involves property. And as a remedy, it is quite rare, because of this fact.[16] The current debate in the High Court revolves around the consideration how the constructive trust is to be used in Australia. One of the most important consideration is the impact upon third parties.
In the past Equity has been criticized for not paying sufficient attention to the impact of its remedies on third parties. For example, in a very short judgment Murphy J held “As so often happens in commercial and conveyancing cases, the court was not assisted by any ‘commercial impact statement’, that is, of what would be the effect in commerce generally, of charges arising in such circumstances.”[17] Further, in extra judicial writing Kennedy J has stated that “One particular criticism which has been levelled at the application of equitable doctrine in commercial transactions is that equity tends to view the case essentially as a problem between the immediate parties to the particular transaction and that, on occasions, insufficient attention is paid to the more remote consequences of a decision, perhaps because the court is ill equipped to do so.”[18]
In attempting to remedy this deficiency the High Court might have swung slightly too far in the opposite direction. Of late, the High Court has been placing great importance upon considering the impact of its remedies upon third parties.
What this writing will primarily[19] attempt to do is to consider the important role that third parties play in the award of the Australian remedial constructive trust. In his groundbreaking article “Remedies as a Legal Subject”[20] Waddams argued that by looking at all remedies together it may be possible to examine individual remedies and to evaluate any differences. This is even more accurate with a remedy, like the remedial constructive trust, which is developing. This writing will attempt to do this with this remedy.
Importantly it should be noticed that Austin[21] has pointed out that “a proprietary remedy should not ever be regarded as mandatory. It should be possible for a court to exercise discretion against decreeing proprietary relief if the circumstances suggest that it would be unwise to do so.” Further in Beatty v Guggenheim Exploration Co Cardozo J said:
A court of equity in decreeing a constructive trust is bound by no unyielding formula. The equity of the transaction must shape the measure of relief.[22]
So according to Cardozo J the dimensions of the constructive trust are not consistent. Importantly this passage was quoted with approval by Mason J in Hospital Products Ltd v United States Surgical Corp.[23]
II. The Case of John Alexander
A. Facts and Decisions
It is important to appreciate that there were two different appeals dealt with in this one decision.[24] These two appeals concerned essentially the same facts. The origins of these appeals lay in the desire of Tennis NSW to sell some land. The respondent and John Alexander Clubs (JACS) were going to purchase and develop this land. P, a nominee of JACS, exercised an option to buy this land. In order to do this P obtained a loan from Walker Corporation, which was the appellant in the second appeal. This loan was secured by an unregistered mortgage to Walker Corporation. Relations between the respondent and JACS fell apart. Litigation ensued.
The respondent claimed JACS had breached the fiduciary duty owed to it to hold option land and resulted in lost opportunity to acquire option land. Alternatively it claimed equitable fraud, unconscionable or unconscientious conduct. Importantly, the respondent claimed a constructive trust over the land.
At first instance, the Supreme Court of New South Wales dismissed the proceedings, on the grounds no fiduciary duty existed.
However, largely following the lead of Carson v Wood[25] the New South Wales Court of Appeal found there to be a constructive trust. In Carson a contract provided for the transfer by the respondents of trademarks to another in which the appellants and the respondents were to hold equal shares. The respondents did not transfer the trademarks. It was held by that Court of Appeal that the particular respondent which held the trademarks, held them as constructive trustee for both parties in equal shares. It was said by Clarke JA (with whom Kirby P agreed) that the assertion by the respondents of sole beneficial ownership of the trademarks “involved the subversion of the intention which underlay” the relevant contractual provision and that it was “in these circumstances inequitable and unconscionable” for the respondent “to persist in that claim and the appropriate remedy available to the [appellants] is a declaration of a constructive trust”.[26] Importantly, the court did not suggest that the right of the appellants to a declaration of a constructive trust might be dependent on a finding that a pre-existing fiduciary relationship existed and there was no finding that such a relationship existed. Largely Carson was based on the constructive trust established by Muschinski[27] per Deane J (with whom Mason J agreed). On similar reasoning the New South Wales Court of Appeal in the JAC case declared a constructive trust existed. Further, the Court of Appeal described the nature of relationship between respondent and JACS as a “joint venture”.