Breach of Trust and Proprietary Remedies Flashcards
Proprietary remedy
Claim that specific assets (in the hands of T or elsewhere) should be returned to the trust
Advantages of proprietary remedy
- Enables recovery even if T disappeared or bankrupt
- Priority for C over other creditors on T’s insolvency
- Ability to recover secondary profits
Disadvantages of proprietary remedy
- Only valuable if property still identifiable
- Property value may have decreased
- Fails once property in hands of bona fide purchaser for value
Why do we allow proprietary remedies? (Foskett v McKeown)
Because of continuing proprietary rights (rather than unjust enrichment)
Tracing
The process by which trust property, or the value inherent in trust property, can be identified
The process of tracing
The claimant:
- Follows the trust property while it remains identifiable
- Traces into any substitution
- Asserts her equitable interest in that property
Can you trace into mixed fund in equity?
Yes
Pre-requisites for equitable tracing
Re Diplock
- C must have an equitable proprietary interest
- There must be a fiduciary relationship
Clean substitution
Trust property directly exchanged for a new asset, e.g. £20,000 from trust used to purchase a car
What can B claim in clean substitution?
Either the substituted property or a charge over the property for the amount of trust property (Re Hallett’s Estate 1880)
Mixed substitution
Trust property combined with another’s property, e.g. in a bank account
Re Tilley’s Will Trusts 1967
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)
What options are available to C where trustee can show that part of the mixed property is his?
- Lien over property to value of trust property
- Proportional beneficial interest in the mixed property
Foskett v McKeown 2001
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
Foskett v McKeown on mixing with not-trustee’s property
B does not have same rights as had against T when it was T’s property
Re Diplock 1946
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
What is a bank in the context of tracing?
A bona fide purchaser for value without notice
Re Hallett’s Estate 1880
F: T paid trust property into own account, withdrew and spend some
H: T assumed to have spent his own money first
Re Oatway 1903
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
The lowest intermediate balance rule
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
Roscoe v Winder 1915
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
Backward tracing
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
Bishopsgate v Homan 1995
Backwardly traced asset cannot be viewed as trust property as already belonged to T
In what circumstances can innocent recipient of trust property defend himself?
If has changed position following the receipt of the property and it would be inequitable for B to claim
