CONSTRUCTIVE TRUST - ELEMENTARY PRINCIPLES FOR THE JUNIOR BAR

 

 

Comprehensive Commentary on the Principles Governing Constructive Trusts in Sri Lanka.

1. Introduction

The law of trusts in Sri Lanka, particularly constructive trusts, occupies a pivotal space within the intersection of equity and statutory law. Rooted in English jurisprudence yet modified to accommodate local statutes and Roman-Dutch traditions, constructive trusts serve to prevent unjust enrichment and remedy fraudulent or inequitable dealings in property. The governing statute is the Trusts Ordinance No. 9 of 1917, as amended, particularly Chapter IX, which deals with constructive trusts. English equitable principles under Section 2 of the Ordinance fill any statutory lacunae.

2. Nature and Scope of Constructive Trusts

A constructive trust arises by operation of law, irrespective of the intention of the parties. It is imposed by the courts in situations where it would be inequitable for the legal title holder to deny the beneficial interest of another. This includes instances of fraud, mistake, undue influence, or abuse of fiduciary relationships.

3. Statutory Framework and Section 2 of the Trusts Ordinance

Section 2 provides that in the absence of specific statutory provisions, matters relating to trusts shall be governed by the principles of equity in force in the High Court of Justice in England. This has allowed the infusion of equitable doctrines such as the presumption of advancement, resulting trust, and constructive trust into local jurisprudence.

4. Key Judicial Decisions Establishing Constructive Trusts

Gould v. Innasitamby (9 NLR 177): Held that the absence of a notarial instrument does not bar the enforcement of a constructive trust if it would otherwise result in fraud.

Sangaraoukka v. Kandiah (19 NLR 344): Recognized that where property is purchased in another’s name without consent but later acknowledged, a trust arises in favour of the person who paid the consideration.

Muniyandi Natchie v. Jatanb (1988 (2) CALR 56): Despite statutory restrictions on non-citizen ownership, a constructive trust was enforced in favour of the true purchaser who had used a nominee to avoid tax.

Wijayaratne v. Somawathie (2002 (1) SLR 93): Reiterated that equitable considerations may override procedural defects if required to prevent injustice.

Mohamed v. Abdul Gafoor (57 NLR 228): An agent who holds property for a minor was deemed a constructive trustee, precluding him from claiming ownership through prescription.

5. Relationship with the Evidence Ordinance and Prevention of Frauds Ordinance

Sections 91 and 92 of the Evidence Ordinance restrict oral evidence to contradict written documents. However, Proviso (1) to Section 92 allows evidence of fraud, mistake, or other facts that may invalidate a document. Courts have invoked this proviso to admit evidence proving the existence of a constructive trust.

Section 2 of the Prevention of Frauds Ordinance mandates notarial execution for transactions involving immovable property. Nonetheless, in Ehiya Lebbe v. Majeed (48 NLR 357) and Fernando v. Thamel (47 NLR 297), courts allowed oral and informal written agreements to establish constructive trusts, holding that equity must not be thwarted by statutory formality when fraud is evident.

6. Constructive Trusts Based on Fiduciary Duty or Abuse of Confidence

Mohamed v. Abdul Gafoor (57 NLR 228): Recognized that a person who assumes a fiduciary role is a constructive trustee.

Bernedette Vanlangenberg v. Hapuaratchige Anthony (1990 (1) SLR 190): Highlighted the evidentiary burden in proving fiduciary breaches resulting in constructive trusts.

7. Presumption of Advancement and Resulting Trusts

Muthalibu v. Hameed (52 NLR 97) and Perera v. Perera (57 NLR 265): When a father or a person in loco parentis purchases property in a child’s name, a presumption of advancement arises, rebuttable by contrary evidence.

 

Affefudeen v. Periyathamby (12 NLR 313): Held that a transaction in the name of a child is presumed to be a gift unless proven otherwise.

 

8. Illegality, Fraud, and the Maxim In Pari Delicto

Saroja Nisansala v. Aberfoyle Holdings (2011) 2 SLR 340: Affirmed that even if parties are complicit in illegality, courts may still grant relief to prevent injustice, rejecting a rigid application of the maxim in pari delicto potior est conditio defendentis.

 

Andiris Punchihamy (24 NLR 203): Demonstrated the court’s readiness to prevent unjust enrichment even when fraud is present, drawing from equitable principles.

 

9. Section 84 and Purchase in Another’s Name

Section 84 of the Trusts Ordinance embodies the core principle that where property is purchased in another’s name using the purchaser’s funds, and absent contrary intention, a constructive trust arises in favour of the person who paid the consideration. 

10. Summary and Conclusion

Constructive trusts remain a dynamic and essential part of Sri Lankan trust law, shaped by statutory provisions, judicial interpretation, and equitable doctrines. They ensure that property is not retained unjustly by those holding legal title in breach of moral or fiduciary obligations. Courts have consistently emphasized that equity will intervene where necessary to prevent fraud, uphold good conscience, and protect true ownership, even when formal statutory requirements appear not to have been satisfied. 

This body of jurisprudence reflects a legal system committed to substantive justice over procedural rigidity, enabling equitable outcomes in complex and often morally ambiguous disputes over property.