New Zealand’s high rate of discretionary trust usage is mirrored by a significant number of attempts to penetrate the ring-fence created by trusts in order to provide some recourse for creditors, spouses and de facto partners of the settlors. This chapter considers a recent line of cases that has shown the courts’ willingness to recognise the application of a constructive trust to property already held subject to an express trust. The constructive trust is said to arise in response to the reasonable expectations of the third-party claimant of an interest in the property in return for various contributions made. This is so even despite one or more of the trustees having no knowledge of the expectations and/or the contributions. The courts have viewed themselves as departing from trust orthodoxy in these cases, saying that ‘traditional rules…must bend to the practical realities’. This paper will examine the cases and analyse whether they are in fact a departure from trust principles and whether such departure is justified. The author argues that there are two main objections to this development: one relating to the nature of the beneficial interest and the other to the remedy being awarded.

A constructive trust is imposed by operation of law when it would be inequitable, by reference to established equitable principles, for the defendant to deny the obligations of trusteeship. The award of a constructive trust usually involves the court ordering the defendant to hold property to which he has title on trust for the plaintiff. But, in some situations, the constructive trust is awarded as a personal remedy; the defendant is held accountable as if he were a trustee. Someone who knowingly assists a trustee or other fiduciary to commit a breach of duty will be accountable as a constructive trustee. As constructive trustee, he must account to the beneficiary for loss caused by the breach. The constructive trust is an ‘as if’ trust – the defendant is treated by equity as if he were an express trustee, even though he is not. The trustee legislation of all States and Territories defines the words ‘trust’ and ‘trustee’ to include a constructive trust and constructive trustee, unless the context otherwise requires. This means that constructive trustees can exercise the statutory powers contained in the legislation.

This chapter addresses equitable interests in property. Despite the implementation of the Torrens system of title by registration for land across all the jurisdictions of Australia, equitable interests remain significant. This chapter considers the characterisation of different equitable interests in property, and the key rules used to resolve priority disputes. Finally, this chapter canvasses some areas where equitable rules, or the philosophy underpinning them, have been incorporated into statutory schemes, with protection against unconscionable conduct particularly prominent.