Chapter 12: Equitable tracing and equitable remedies Flashcards
what is tracing?
action by a beneficiary who has lost trust assets due to the conduct of a trustee can recover their property or identify property purchased using trust funds (equivalent) and claim this property.
when would a beneficiary use tracing?
trustee is bankrupt
trustee cannot be found
innocent volunteer
more profitable than personal claim
what are the effects of tracing property?
Charge over the asset: sell/ can claim from proceeds.
Constructive trust over asset: equitable proprietary interest
what must proeprty be to not be able to trace?
when the property no longer exists e.g there is no longer anything identifiable
what are the 5 requirements of tracing?
Fiduciary relationship
Must have equitable proprietary interest
Property must be traceable
Must not produce an inequitable result
No unreasonable delay
what is an equitable proprietary interest?
A right to benefit from the property
what kind of fiduciary relationship must be present?
initial fiduciary relationship - does not need to be the person they are actively tracing against e.g innocent volunteer.
what property cannot be traced?
property purchased in good faith
when can tracing cannot be used?
where the property has been mixed (used towards something where an innocent volunteer has used their own money).
What is the limitation period on tracing
equitable remedy = no limitation period.
what happens if a claimant tries to claim property after a period of time?
Doctrine of laches applies - undue delay when asserting their rights and would be unfair to enforce these rights.
what is following?
tracing unmixed funds that have not been sold
the trust assets are reclaimed
what are the options available to a claimant tracing unmixed trust funds that have been sold?
claim proceeds of sale
claim the property purchased using proceeds from a sale
purchaser is a constructive trustee - claim property
what is the process to trace mixed funds between trustee money and trust fund money
Trustee must prove some funds belong to them
if the trustee can prove - funds are distributed pro rata between trustee and beneficiaries
What claim does a beneficiary have if a trustee used their own money and trust funds?
claimant has first claim over any property purchased
what happens when trustee mixed funds with another trust/ third party?
claimants can make a claim pro rata
what is the presumption when funds from a trustee and trust fund are mixed in a bank account?
Trustee presumed to withdraw their own money first
means beneficiaries can reclaim their money
what happens when a trustee uses their own money and trust fund money to buy property?
The presumption a trustee withdraws own money first does not apply
beneficiaries have first charge over any property
what is the principle of lowest intermediate balance?
A claim is limited to the accounts lowest balance after the trust money has been paid in. Even if more funds are put in later by the trustee (can only claim on the initial mixed funds) …
when can tracing not apply due to the principle of lowest intermediate balance?
an overdrawn account if the overdraft exceeds the amount paid in
what is backwards tracing?
tracing must be chronological
property must be directly bought using trust money
what is an exception to ‘no backwards tracing’?
coordinated scheme exception - the court is satisfied the steps taken are part of a scheme to prevent tracing.
what rule is applied to mixed funds between two trusts or trust and innocent volunteer?
First in first out rule
what is the first in first out rule?
The first payment made into the account is the first to be used in a withdrawal/ purchase.
