9. Equitable Remedies

Question 1

Mixed funds - property bought with trust’s and trustees money.

Answer 1

Beneficiaries have first claim over property.

Question 2

Mixed funds - property bought with money from two different trusts.

Answer 2

Two trusts share property pro rata

Question 3

Mixed funds - property bought with money from trust and innocent volunteer.

Answer 3

Trusts and innocent volunteer share the property pro rata

Question 4

Can you trace into an overdrawn account?

Answer 4

No

Question 5

Trustee mixes B’s money with his own - rule in Re Hallett

Answer 5

Presume that the wrongdoing trustee has done the right thing and spent his own money first

Question 6

Trustee mixes B’s money with his own and buys property - rule in Re Oatway

Answer 6

Innocent beneficiary can “cherry-pick” between whether to trace into an assets acquired with mixed funds. Can pick the most profitable.

• except where it would prejudicially affect 3rd parties (ie. unsecured creditors)

Question 7

Lower intermediate balance rule

Answer 7

Claimant cannot trace into later deposited money; maximum claimable amount is the lowest intermediate balance following the original deposit.

Question 8

T mixing money of two trusts - Clayton’s rule first in, and first out” rule”

Question 9

If T paid £3000 of trust’s money into an account w/ £1,000 overdraft, how much will a beneficiary be able to trace back?

Answer 9

Lower Intermediary balance rule applies = claim is limited to recovering £2,000.
- no tracing where there is an overdraft.

Question 10

Coordinate scheme exception

Answer 10

exception to general rule of no backward tracing where defendant took deliberate steps to defeat tracing.
- applied in complex fraud cases.

Question 11

Subrogation

Answer 11

where trustee uses trust money to pay off a debt.
- allows beneficiary to revive security/step in creditor’s shoes = treating them as if they loaned they money.

• ie. if T paid off his house mortgage, then B could revive mortgage and claim security over the house (proportionate to value of claim). Most beneficial in secured debt scenarios.

Question 12

Is partial subrogation possible?

Answer 12

Yes

Question 13

Is subrogation possible even where debt was paid off by a third-party?

Answer 13

Yes - Menelaou v Bank of Cyprus

Question 14

Five key requirements for tracing

Answer 14

1. fiduciary relationship
2. claimant w/ equitable proprietary interest
3. property is traceable
4. would no produce inequitable outcome
5. no unreasonable delay in bringing claim

Question 15

Change of position defence

Question 16

Trustee mixing funds from two different trusts - ‘first in, and out’ rule

Answer 16

Presumption that the first trust money paid into the mixed account was the first to have been dissipated (or used to purchase an asset).

Note:
- presumption = rebuttable!

Question 17

Difference between following and tracing

Answer 17

process of following simply tracks down the same asset, whereas of tracing, misappropriated trust property has been substituted.

Question 18

Bona fide purchaser defence

Answer 18

Defeats beneficiary’s proprietary claim over any asset purchased by a third-party w/ out notice of its provenance. Cannot trace.

Question 19

Benefits of a proprietary claim (cf. personal one)

Answer 19

1) not affected by defendant’s bankruptcy/insolvency
2) allows beneficiaries to capture increases in value of traceable proceeds.
3) no need to establish fault on any party’s part

Question 20

Exceptions where rule in Clayton’s Case (first in/out) can be misapplied

Answer 20

(see Barlow v Vaughan)
- contrary to parties’ intention when contributing to the mixture
- impracticable
- unfair

Question 21

Barlow v Vaughan - exception to Clayton’s rule

Answer 21

Investors paid money into large investment scheme.
- rule would have not left enough money to meet all of the claims.
- Held = all parties were victims of “common misfortune”
- contrary to their intentions when first investing in scheme that first contributing parties should have priority over later ones.

Question 22

Trustee mixing funds from two different trusts - alternatives to Clayton’s rule

Answer 22

Innocent beneficiaries’ claims are proportionate to fractional value of their contributions to mixture.