EQUITABLE CLAIMS - CONSTRUCTIVE TRUSTS 


Constructive trusts are a remedy based on legal or equitable principles designed to prevent unfair or unconscionable enjoyment of property.  Baumgartner v Baumgartner (1987) 164 CLR 137 and Muschinski v Dodds (1985) 160 CLR 583 are leading cases in this area.

A fairly common area in which a constructive trust arises is where property is registered in the name of one party but another party makes a contribution to the property.  A leading case in this area is Giumelli v Giumelli [1999] 196 CLR 101.  Put as simply as possible, facts of the Giumelli case are as follows:

Background facts

The parents and their son ran a family orchard business on an 338 acre farm in Dwellingup, WA.  The son started working on the farm after he left school in 1971.  He did not receive a wage although his living expenses were paid by the partnership and he continued to live with his parents on the farm.  During the course of working together and over time, the parents promised the son that if he stayed and worked on the property, the land would be sub-divided and he would receive a portion of the land later on.  The first promise was made during 1974 and when the son informed his parents of his intention to marry in 1980, they stated that the farm could be sub-divided and a house built on his portion of the farm for his future family.  The son gave up opportunities to pursue different careers.  In 1985 the son met and decided to marry a woman who the parents disapproved of.  As a result, a fallout happened and the parents refused to transfer the promised property to the son.  There was no written agreement regarding the transfer of the land entered into between the parents and their son.

Legal issues

The Court refused to recognise the construction of a trust arising from the promises made by the parents.  However, the Court recognised that the parents ought not to be allowed to depart from the assumed state of affairs they had created.  That is, the parents had represented that the son had an entitlement to a portion of the land.  The Court stopped the parents denying the assumed state of affairs (the promises they had made), this denial being considered equitable in the circumstances.

Judgment

The Court found the son has an entitlement to relief based on the assumed state of affairs, namely that he would receive a portion of the land.  The Court in fact enforced the promise made by the parents to their son.  However, in this case, since the son’s brother had already been awarded the property and made improvements to it, monetary compensation was paid to the son, the amount of which was calculated according the value of the property.  In short, the Court recognised the son’s expectation interest in the property, which expectation was reasonable based on both the parents promises made and the son’s contribution to the farming business.