Constructive Trusts Explained: Remedies For Unjust Enrichment

If money or property has ended up in the wrong hands, you’ll want a fast, practical way to get it back. In Australia, a constructive trust is one of the key equitable remedies courts use to address unjust enrichment and other forms of wrongdoing.

In simple terms, a constructive trust can treat someone as if they’re “holding” assets for you, even if your name isn’t on the title. It’s powerful, but it’s not granted automatically - you need the right facts, evidence and strategy.

In this guide, we’ll break down what constructive trusts are, when they’re available, how they compare to other remedies, and the practical steps you can take to protect your position if you suspect unjust enrichment.

What Is A Constructive Trust In Australia?

A constructive trust is a court-imposed remedy that recognises you as the true beneficial owner of property held by someone else. It arises by operation of law (not by a written trust deed) where it would be unconscionable for the holder to keep the benefit.

It’s part of equity - the body of law focused on fairness - and it often sits alongside related concepts like equitable interests, fiduciary duties and restitution. The core idea is simple: if someone has been unjustly enriched at your expense, or they’re holding property obtained by wrongdoing, the court can declare they hold it on trust for you.

Key features:

• It targets specific property or its traceable proceeds (not just a general money judgment).
• It can apply even if there’s no written agreement or registered interest.
• It’s discretionary - the court weighs fairness, the conduct of the parties and practicalities.

When Do Courts Impose A Constructive Trust?

Constructive trusts can arise in a range of scenarios. Common categories include:

Breach Of Fiduciary Duty Or Confidence

Directors, partners, agents and others in special positions of trust can owe fiduciary duties. If they profit from a conflict of interest, misuse confidential information or divert a corporate opportunity, a court can declare a constructive trust over the profits or assets obtained.

Knowing Receipt Or Assistance

If someone receives property that was transferred in breach of trust or fiduciary duty, and they knew (or ought to have known) something was wrong, a constructive trust may attach to what they received.

Fraud, Misrepresentation Or Unconscionable Conduct

Where assets are obtained by fraud or misleading conduct, equity can respond by imposing a trust over the gains. This often runs in parallel with contract and statutory claims - for example, alongside claims of misrepresentation or misleading or deceptive conduct under the Australian Consumer Law.

Joint Endeavours And Contributions

In some business or property ventures, one party contributes funds or effort on the shared understanding they’ll have an interest in the resulting asset. If the relationship breaks down, a constructive trust can reflect the true beneficial ownership based on contributions and expectations.

Intermingled Or Traced Funds

Where money is mixed and used to acquire other assets, equity allows “tracing” into substitute property. A constructive trust can then be declared over that substitute, ensuring the wronged party isn’t defeated by creative transfers.

Constructive Trusts Vs Other Remedies: Which Remedy Fits?

Constructive trusts are powerful - they give you a proprietary claim to specific assets. But they’re not always the right (or only) answer. Depending on your facts and goals, consider the full toolkit:

• Common law damages: A money judgment for loss caused by breach of contract or negligence. Useful if you just want compensation and locating specific assets isn’t critical.
• Statutory damages: If you’ve suffered loss due to misleading conduct, you can seek compensation under section 236 of the Australian Consumer Law. This can run alongside equitable claims.
• Account of profits: Rather than compensating your loss, the wrongdoer must disgorge profits they made from the wrongdoing. This is common in fiduciary breaches and misuse of confidential information.
• Equitable lien: A security-like interest over property to secure payment, without transferring ownership like a trust does. Helpful where a trust is too intrusive but security is justified.
• Rescission and restitution: Unwinding a transaction and restoring parties to their pre-contract positions, particularly for vitiating factors like misrepresentation, mistake or duress.
• Injunctions or freezing orders: Interim relief to preserve assets so your final remedy isn’t undermined.

Choosing the right remedy is strategic. If the asset is unique, fast-appreciating, or at risk of being transferred, a constructive trust (combined with urgent injunctive relief) can be the best way to protect value. If you mainly want money, a damages or account of profits claim may be simpler to enforce.

How Do You Prove Unjust Enrichment And Get A Constructive Trust?

While “unjust enrichment” is a helpful way to frame the problem, Australian courts typically analyse constructive trusts through established equitable doctrines (fiduciary breach, unconscionability, failure of consideration, resulting trusts, etc.). In practice, you’ll want to line up clear facts that show:

• Receipt or retention of a benefit: Money, property, shares, confidential information or business opportunities.
• At your expense: Directly (your money was used) or indirectly (your opportunity or information was exploited).
• Unconscionability or recognised equitable wrong: e.g. breach of duty, fraud, knowing receipt, failed joint venture or other circumstances that make it unjust for the recipient to keep the benefit.
• Identifiable property (or traceable proceeds): You can point to assets to which the trust should attach.

Evidence And Tracing

Courts look for bank trails, transaction records, company minutes, emails, deal documents, and witness testimony to map contributions and knowledge. If funds were mixed, tracing rules help follow value into substitute assets. Keep your evidence short, clear and chronological - the story matters as much as the spreadsheets.

Defences And Limits

Equity won’t impose a trust where it would be unfair to third parties. Two common protections are:

• Bona fide purchaser for value without notice: If a third party acquires the property in good faith and pays value, your equitable claim may be defeated against that party.
• Change of position: In some restitution contexts, if the recipient has materially changed their position in good faith, full restoration may be reduced.

Courts also consider practicalities: proportional interests where multiple contributors exist, whether a money remedy is adequate, and whether a trust would create commercial disruption out of proportion to the wrong.

Practical Steps If You Suspect Unjust Enrichment

If you think assets have been diverted or a partner has taken a joint opportunity, act quickly and methodically. Early steps can make or break your position.

1) Stabilise The Situation

• Preserve evidence (emails, chat logs, meeting notes, bank statements, device backups).
• Secure company records and access controls; change passwords if necessary.
• Consider urgent relief (injunctions or freezing orders) to prevent dissipation of assets.

2) Identify And Lock Onto The Asset

• Map where your funds or value went and what they were used to acquire.
• Where personal property is involved, ensure your security interests are registered on the PPSR to get priority going forward.
• For land, consider lodging a caveat if you have a registrable equitable interest, noting that caveats are serious and time-sensitive.

3) Choose Your Remedy Mix

With your lawyer, decide whether to pursue a constructive trust, an account of profits, damages or a combination. Your choice may change as facts emerge, but an early roadmap helps move swiftly and keeps costs focused on outcomes.

4) Negotiate In Parallel

Even if you’re preparing court papers, pursue a commercial resolution. It's often faster and preserves relationships. A carefully drafted Deed of Release and Settlement can finalise repayment, assign rights, and include non-disparagement and confidentiality terms.

Preventative Measures: Documents And Clauses That Reduce Risk

The best remedy is not needing one. Clear governance, contracts and policies reduce the risk of unjust enrichment and make constructive trust claims easier if things go wrong.

• Company Constitution: Set rules around director conflicts, related party dealings and decision-making to reduce fiduciary breaches.
• Shareholders Agreement: Clarify ownership, vesting, IP assignment, pre-emption rights and exit mechanics so value can’t be siphoned without consent.
• Non-Disclosure Agreement: Protect confidential information and trade secrets, with strong remedies if someone misuses them for personal gain.
• IP Assignment And Moral Rights Consent: Make sure the company owns what staff, founders and contractors create. Clear IP terms reduce disputes over ownership of code, designs and content.
• Commercial Restraints: Reasonable non-compete and non-solicitation clauses can deter diversion of opportunities while relationships are live.
• Conflict Of Interest Policy: Require disclosure and approval processes before anyone pursues overlapping opportunities.

If a dispute arises, having these documents in place also supports interim court relief (because you can point to agreed obligations) and puts you in a stronger position to settle the matter on fair terms.

FAQs About Constructive Trusts (For Business Owners)

Is a constructive trust the same as a resulting trust?

No. A resulting trust typically reflects contributions to purchase price or a failure of intention to gift, while a constructive trust is imposed by the court to address wrongdoing or unconscionability. Both are equitable and can produce similar outcomes, but they arise for different reasons.

Do I need a written agreement to claim a constructive trust?

No. By definition, constructive trusts don’t depend on a signed trust deed. They’re imposed by law where the facts justify it. That said, written agreements make it easier to prove expectations and contributions.

Can I claim both a constructive trust and damages?

Often, yes. Courts can grant alternative or complementary remedies depending on what’s most appropriate. For example, you might pursue an account of profits in the alternative to a trust, or seek statutory compensation under the Australian Consumer Law while also seeking proprietary relief.

How long will a constructive trust claim take?

Timeframes vary with complexity, urgency and court workload. Urgent interim relief can be sought in days. Final hearings take longer. Good preparation (clean evidence, clear pleadings, focused issues) speeds everything up.

Key Takeaways

• A constructive trust is an equitable remedy that can recognise you as the true beneficial owner of assets held by someone else, especially where there’s unjust enrichment or wrongdoing.
• Courts use constructive trusts after breaches of duty, fraud or when contributions and shared understandings make it unfair for the holder to keep the property.
• They sit alongside other tools - damages, an account of profits, rescission and injunctions - so choose the remedy mix that best protects value.
• Move quickly: preserve evidence, consider urgent orders, and map the asset trail so you can trace into substitutes if needed.
• Strong governance and contracts reduce risk up front - tools like a Company Constitution, Shareholders Agreement and robust NDAs help prevent disputes and support enforcement if they arise.
• Where misleading conduct is involved, pair equitable claims with statutory rights such as compensation under section 236 of the Australian Consumer Law for a comprehensive strategy.

If you’d like tailored advice on constructive trusts or a potential unjust enrichment dispute, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.