Remedial and institutional systems

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Brief 102317 Delivery Date: 13/08/2005 Title: “The remedial constructive trust has taken root in the United States and Canada: it is unlikely to do so in England” – Millet LJ in Restitution and Constructive Trusts 1998 114 LQR p399 Explain the differences between remedial and institutional constructive trusts and the advantages and disadvantages of each approach. Discuss whether judges in England and Wales are likely to adopt the remedial system. Introduction Endorsed in jurisdictions from Australia to the United States of America, the remedial constructive trust is a trust settled by court order as a remedy for a wrong. Entitlement to the remedy is an issue for the substantive law, but the trust itself is created by order of the court, not by the acts of the parties, or even by the obligation to make restitution.[1] Remedial constructive trusts are settled by equity notwithstanding any actual or presumed agreement or intention. Academic commentators however, continue to debate the issue as to whether the trust is founded on the enforcement of proprietary rights, the avoidance of unconscionable conduct, or crafted as restitutionary remedy. In so far as a constructive trust functions as a proprietary remedy, it must be carefully distinguished from the equitable process of tracing. Tracing is a necessary initial procedure for a complainant seeking a proprietary remedy.[2] The process empowers the complainant to specify and recover property held by a third party. It may be utilised in a variety of causes of action, including detinue[3] and conversion at common law and for breach of trust in equity. Note that the ordering of a remedial constructive trust is only one among several remedies that may be granted as a result of a wrong categorised as unjust enrichment. Other possible remedies include a damages order, and legal or equitable remedies as the circumstances of each particular case may dictate. Although extensive consideration has been devoted to the characteristics of the remedial constructive trust,[4] it is submitted that its essential features are still in nascent form,[5] in particular in the context of corporate financing. Unhelpfully, common law jurisdictions across the world are not in complete conformity regarding the definition of the trust. That said, Deane J’s obiter on the fundamental features of the trust in Muschinski,[6] , is one possible point of departure. Deane J stated that a constructive trust is: “A remedial institution that equity imposes regardless of any actual or presumed agreement or intention, and subsequently protects, to deny the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principles.”[7] Some of the key characteristics of the remedial constructive trust were identified by Deane J. He found, in particular, that it is not necessary to establish the existence of a pre-existing fiduciary relationship between the parties, although one may well be found to exist. He concluded that the trust is underpinned by long-settled principles of equity and on the basis of ‘idiosyncratic notions of fairness and justice’.

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