Breach of Trust and Proprietary Remedies

Question 1

Proprietary remedy

Answer 1

Claim that specific assets (in the hands of T or elsewhere) should be returned to the trust

Question 2

Advantages of proprietary remedy

Answer 2

• Enables recovery even if T disappeared or bankrupt
• Priority for C over other creditors on T’s insolvency
• Ability to recover secondary profits

Question 3

Disadvantages of proprietary remedy

Answer 3

• Only valuable if property still identifiable
• Property value may have decreased
• Fails once property in hands of bona fide purchaser for value

Question 4

Why do we allow proprietary remedies? (Foskett v McKeown)

Answer 4

Because of continuing proprietary rights (rather than unjust enrichment)

Question 5

Tracing

Answer 5

The process by which trust property, or the value inherent in trust property, can be identified

Question 6

The process of tracing

Answer 6

The claimant:

• Follows the trust property while it remains identifiable
• Traces into any substitution
• Asserts her equitable interest in that property

Question 7

Can you trace into mixed fund in equity?

Answer 7

Yes

Question 8

Pre-requisites for equitable tracing

Answer 8

Re Diplock

• C must have an equitable proprietary interest
• There must be a fiduciary relationship

Question 9

Clean substitution

Answer 9

Trust property directly exchanged for a new asset, e.g. £20,000 from trust used to purchase a car

Question 10

What can B claim in clean substitution?

Answer 10

Either the substituted property or a charge over the property for the amount of trust property (Re Hallett’s Estate 1880)

Question 11

Mixed substitution

Answer 11

Trust property combined with another’s property, e.g. in a bank account

Question 12

Re Tilley’s Will Trusts 1967

Answer 12

The onus is on the trustee to distinguish the separate assets, and to the extent he fails to do so, they belong to the trust (if trust assets mixed with trustee’s own property)

Question 13

What options are available to C where trustee can show that part of the mixed property is his?

Answer 13

• Lien over property to value of trust property

- Proportional beneficial interest in the mixed property

Question 14

Foskett v McKeown 2001

Answer 14

F: B sought to trace the trust money into the death benefit, needed tot race into premiums, then into life policy on into the death benefit
I: What could h claim?
H: Permitted to claim a proportional share in the death benefit, not just the value of trust property

Also no need to prove that the contribution (from the trust money) added to the value of the asset

Question 15

Foskett v McKeown on mixing with not-trustee’s property

Answer 15

B does not have same rights as had against T when it was T’s property

Question 16

Re Diplock 1946

Answer 16

In mixing with another’s property, each party can claim a proportionate share in the mixed property

Plus innocent recipients spent money improving property - would be inequitable to allow Bs’ proprietary claim against them

Question 17

What is a bank in the context of tracing?

Answer 17

A bona fide purchaser for value without notice

Question 18

Re Hallett’s Estate 1880

Answer 18

F: T paid trust property into own account, withdrew and spend some
H: T assumed to have spent his own money first

Question 19

Re Oatway 1903

Answer 19

F: T paid money into own account, used some to buy shares, then dissipated the rest
H: B could trace into shares, as assumption that T used trust property to make the investment

Question 20

The lowest intermediate balance rule

Answer 20

Tracing limited to the account’s lowest intermediate balance because only this is attributable to B’s own property, cannot trace through account that has been emptied or overdrawn
This is because tracing is about proprietary interests

Question 21

Roscoe v Winder 1915

Answer 21

F: T paid money into his own account then spent loads so the balance was £25, then paid in some of his own money which took the account back up to £350
I: What could C claim?
H: Only £25 - the lowest intermediate balance

Question 22

Backward tracing

Answer 22

T borrows to buy asset, and uses trust money to repay the loan - can B trace backwards into the asset?
Traditionally backward tracing not permitted

Question 23

Bishopsgate v Homan 1995

Answer 23

Backwardly traced asset cannot be viewed as trust property as already belonged to T

Question 24

In what circumstances can innocent recipient of trust property defend himself?

Answer 24

If has changed position following the receipt of the property and it would be inequitable for B to claim