9. Equitable Remedies Flashcards
Mixed funds - property bought with trust’s and trustees money.
Beneficiaries have first claim over property.
Mixed funds - property bought with money from two different trusts.
Two trusts share property pro rata
Mixed funds - property bought with money from trust and innocent volunteer.
Trusts and innocent volunteer share the property pro rata
Can you trace into an overdrawn account?
No
Trustee mixes B’s money with his own - rule in Re Hallett
Presume that the wrongdoing trustee has done the right thing and spent his own money first
Trustee mixes B’s money with his own and buys property - rule in Re Oatway
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)
Lower intermediate balance rule
Claimant cannot trace into later deposited money; maximum claimable amount is the lowest intermediate balance following the original deposit.
T mixing money of two trusts - Clayton’s rule first in, and first out” rule”
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?
Lower Intermediary balance rule applies = claim is limited to recovering £2,000.
- no tracing where there is an overdraft.
Coordinate scheme exception
exception to general rule of no backward tracing where defendant took deliberate steps to defeat tracing.
- applied in complex fraud cases.
Subrogation
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.
Is partial subrogation possible?
Yes
Is subrogation possible even where debt was paid off by a third-party?
Yes - Menelaou v Bank of Cyprus
Five key requirements for tracing
- fiduciary relationship
- claimant w/ equitable proprietary interest
- property is traceable
- would no produce inequitable outcome
- no unreasonable delay in bringing claim
Change of position defence
Trustee mixing funds from two different trusts - ‘first in, and out’ rule
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!
Difference between following and tracing
process of following simply tracks down the same asset, whereas of tracing, misappropriated trust property has been substituted.
Bona fide purchaser defence
Defeats beneficiary’s proprietary claim over any asset purchased by a third-party w/ out notice of its provenance. Cannot trace.
Benefits of a proprietary claim (cf. personal one)
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
Exceptions where rule in Clayton’s Case (first in/out) can be misapplied
(see Barlow v Vaughan)
- contrary to parties’ intention when contributing to the mixture
- impracticable
- unfair
Barlow v Vaughan - exception to Clayton’s rule
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.
Trustee mixing funds from two different trusts - alternatives to Clayton’s rule
Innocent beneficiaries’ claims are proportionate to fractional value of their contributions to mixture.
