Windfall Equity and the Joint Endeavour Principle

Abstract

In 1985 the High Court of Australia delivered its judgment in Muschinski v Dodds (1985) 160 CLR 583 which awarded a constructive trust as a remedy. This case concerned a joint endeavour between two parties who were in a de facto relationship. The joint endeavour broke down without attributable blame in circumstances not contemplated by either party. A constructive trust was awarded to prevent one party from unconscionably asserting legal title to property obtained due to the joint endeavour without accounting to the other party for their equitable entitlements. The leading judgment by Deane J in this case was based on two principles. The first principle was that a constructive trust may be awarded as a remedy without a breach of fiduciary duty being necessary, but its use as a remedy must be principled, based on legitimate processes of legal reasoning. The second principle was in finding that principled basis by analogy to the general equitable principles that underpin partnership law which do not let property and rights simply lay where they fall if the parties’ arrangements end unexpectedly. Since 1985, courts across all levels and jurisdictions in Australia have applied the principles in Muschinski v Dodds. In that time, the case has found its principal use in de facto relationships. Some courts have sought to develop those principles in line with family law concepts, which has also drawn criticism from other courts. Eventually, the family law regime around 2009 finally included de facto relationships. However, the principles in Muschinski v Dodds still found use in other areas of law regarding families that family law does not address, such as the property rights of parents and children. Texts and commentators focus predominantly on these issues, claiming that the Muschinski v Dodds-style of constructive trust is purely remedial and applies to parties who cohabit. Further, in being treated as purely remedial, the principles in Muschinski v Dodds are often used to award any remedy in general for a failed joint endeavour, seemingly without a constructive trust being necessary, such as in Henderson v Miles (No 2) [2005] NSWSC 867 which coined the term ‘windfall equity’. However, that is only one aspect. During those thirty-plus years, the principles in Muschinski v Dodds have also applied to many cases that involve third parties, ranging from loose family arrangements to sophisticated contractual joint ventures. In these scenarios, whilst the Muschinski v Dodds-style of constructive trust is used as a remedy, it does so by taking advantage of its institutional characteristics: as a trust exists over property, the owner has no beneficial title to the property. This means that a claim by a third party against the property of a party to a joint endeavour may not succeed, as that property may in fact be beneficially owned by another. Texts and commentators overlook this prominent use of the constructive trust in favour of viewing it as purely remedial. In light of thirty-plus years of case law, this view cannot be sustained. The Muschinski v Dodds-style of constructive trust is not purely remedial: there is, in fact, no distinction between ‘remedial’ and ‘institutional’. A constructive trust arises by operation of law during a joint endeavour. The relevance of joint endeavours is also overlooked, despite joint endeavours being crucial to the Muschinski v Dodds-style of constructive trust. There has been no discussion on the mechanism for how this constructive trust operates beyond as a purely remedial device, nor has there been discussion on joint endeavours in general. From the case law, the constructive trust is inseparable from the joint endeavour in which it arises. Equity acts when it would be unconscionable for a party to assert their legal rights – this does not require wrongdoing. Further, as these trusts may afford higher priority to property than a third party, there must be some intrinsic character of a joint endeavour that gives rise to a constructive trust. This intrinsic character is of special relevance as, given that a joint endeavour can range from loose family arrangements to sophisticated contractual joint ventures, there is an underlying fabric connecting joint endeavours and joint ventures that has not yet been identified. These questions can be analysed and answered through the lens of corrective justice and unconscionability in Australia. In actuality, Muschinski v Dodds provides two crucial things. The first is that it provides the grounds for the cause of action of the ‘windfall equity’, which operates when a joint endeavour has broken down without attributable blame in circumstances not contemplated by the parties, and where one party has unconscionably retained property to the exclusion of the other. The second is that it provides a set of unifying principles called the ‘joint endeavour principle’ which governs how Equity assists joint endeavours, regardless of their formality, which includes the regulation of fiduciary duties and the construal of trusts.