Constructive Trusts and Tracing

Publication Date01 April 1994
DOIhttps://doi.org/10.1108/eb025649
Pages222-233
AuthorStuart Evans
SubjectAccounting & finance
Constructive Trusts and Tracing
Stuart Evans
Stuart Evans
practised as a solicitor with Lovell White
Durrant from 1987 to 1993, having been
articles with the then Lovell White & King.
He has given seminars on constructive
trusts,
tracing, international fraud and
money laundering, and has previously
had articles published on these subjects.
Mr Evans temporarily relocated to the
United States at the end of 1993,
qualifying as an attorney-at-law in May of
this year. He has returned to the UK to
resume his legal career.
ABSTRACT
Does the mere mention of a trust conjure up
images of equity-speak in favour of Great
Aunt Maud? Does a constructive trust give
you sick building syndrome? Does tracing
send you back to the drawing board?
The following paper may be just what you
need.
It explains the concept of a simple
trust, and how its fundamental principles
manifest themselves in the court-imposed
constructive trust, paying particular atten-
tion to the vexed issue of knowledge, the
linchpin of constructive trusteeship and the
cause of great confusion among those
called upon to analyse it. This paper will
then examine the related concept of tracing,
and amplify how the principles underpinning
these remedies are employed by the courts
to maximum effect, by reference to recent
cases.
The inevitable conclusion is that the use
of ill-fitting equitable concepts in a complex
and fast-moving world of commerce is an
outmoded approach, which, if anything,
creates more problems than it solves.
Last year's majority decision in the
Court of Appeal in Central Bank of the
Turkish Republic of Northern Cyprus v
Polly
Peck International Plc1 produced a con-
siderable amount of press coverage, not
least because of the high profile of the
alleged instigator of the Polly Peck
fraud, Mr Asil Nadir. Whilst this deci-
sion was a setback for the liquidators, the
subject-matter of the case involved
further analysis of the doctrine of con-
structive trusteeship, and hence an
opportunity for this vexed topic and
another with which it is closely con-
nected
tracing
to be revisited. Now,
the subsequently decided El Ajou v
Dollar Land Holdings1 brings together
both these remedies into sharper focus.
In Polly
Peck,
the Bank was alleged to
have had knowledge (sufficient to render
it liable as a constructive trustee) that
£45m winch had passed through it was
part of Polly Peck's £371m, allegedly
misappropriated by Nadir. The concept
of constructive trusteeship was central to
the decision because the provision in the
Rules of the Supreme Court, under
which leave was sought to serve a writ
on the Central Bank of the Turkish
Republic of Northern Cyprus outside
222

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