The recent case of Three Chicks v NZ Building Projects raises the novel question – can a remedial constructive trust be claimed in respect of work carried out under a contract? By way of background Three Chicks, the owner of a property, assigned a building contract to NZ Building Projects. Following the completion of the building work both parties claimed it was owed money by the other.
NZ Building Projects upped the ante in the dispute when it lodged a caveat on the title to Three Chicks’ property. When it became necessary to sustain the caveat NZ Building Projectsneeded to be able to point to the existence of a trust to support the caveat. NZ Building Projects attempted to argue the existence of a remedial constructive trust, that is a trust imposed by the court as a remedy, where the court is satisfied that property owned by one party should be impressed with a trust in favour of another – because that would be a fair outcome.
However, the argument in favour of a remedial constructive trust was fatally flawed in the case at hand (even if the court could have been persuaded to grant one) given that even if such a trust were to be imposed by the court, the trust could not have been in existence at the time the caveat was lodged. Not a great outcome for NZ Building Projects, although a useful consideration of the imposition of contructive trusts as a remedy, as well as demonstrating the power (sometimes) of the shape shifter that a trust can be.
A trust resulting from labout that improves another party’s properyt cannot be ruled out. However, difficult to establish in practise. In conclusion, trusts can be good, but not that good.