Equitable remedies

Question 1

When would equitable remedies be available broadly speaking?

Answer 1

When damages are not adequate

Question 2

What are the beneficiaries options when a trustee misapplies funds?

Answer 2

a) Sue for breach of trust
b) Sue third party who assisted breach
c) Claim against misapplied property/traceable proceeds
d) Sue third party who knowingly received traceable proceeds of breach

Question 3

What are the benefits of equitable proprietary claims?

Answer 3

• Not effected by defendant’s bankruptcy/insolvency
• Capturing increase in value of traceable proceeds
• Can be maintained against innocent recipients of trust property

Question 4

What is following?

Answer 4

same asset as it moves hand to hand

Question 5

What is tracing?

Answer 5

new asset as substitute for old (‘series of direct substitutions’)

Question 6

What is claiming?

Answer 6

assertion of personal/proprietary right re misapplied trust property or its traceable proceeds

Question 7

What are the conditions required for following, tracing and claiming?

Answer 7

a) Claimant had a right of property recognised by equity in the asset
b) Asset was held by a person who was in a fiduciary relationship with Claimant

Question 8

What can a beneficiary make a proprietary claim in respect of?

Answer 8

• Misapplied trust property
• Assets purchased exclusively with misapplied trust property
• Assets purchased with a mixed fund

Question 9

What sort of claims could be made once an asset purcahsed with misapplied trust property has been indentified?

Answer 9

• beneficial ownership
• beneficial ownership of a share
• equitable lien
• subrogation

Question 10

What is the principal defence to an equitable proprietary claim?

Answer 10

Bona fide purchaser for value without notice

Question 11

What is the simple case where it is easy to identify traceable proceeds?

Answer 11

asset acquired exclusively with misapplied trust funds

Question 12

Does tracing only apply to bank accounts?

Answer 12

also applies to physical mixtures of fungible goods

Question 13

What is a wrongful mixture?

Answer 13

A mixed fund comprising misapplied trust money and the trustee’s own money

Question 14

What is an innocent mixture?

Answer 14

A mixed fund comprising misapplied trust money and money derived from one or more innocent third parties

Question 15

What is the basic rule for wrongful mixing?

Answer 15

where trustee withdraws from wrongful mixture, some of which is dissipated, beneficiary can treat dissipated funds as trustee’s won and identifiable funds as trust funds

Question 16

What is the cherry picking rule for wrongful mixing?

Answer 16

• Where only dispute is beneficiary and trustee, beneficiary can attribute the most profitable applications of mixed fund to the trust money
• Otherwise basic rule applies

Question 17

What is the general rule for innocent mixing where a trustee mixes different trust funds?

Answer 17

withdrawals are attributed rateably to contributors

Question 18

What is the general rule for innocent mixing where an innocent party mixes funds?

Answer 18

proportion of original fund = proportion of what remains

Question 19

What is the general rule where there are withdrawals from an innocent mixture in a current account (clayton’s case)

Answer 19

Sum first in is sum first out

Question 20

When can clayton’s case be disapplied?

Answer 20

o Contrary to intentions of parties who contributed to mixture or
o Impracticable or
o Unfair

Question 21

What are the two alternatives to clayton’s case?

Answer 21

• pari passu ex post facto method
• rolling charge method

Question 22

What is the pari passu ex post facto method?

Answer 22

attribute withdrawals from the account fractionally to all contributors

Question 23

What is the rolling charge method?

Answer 23

each individual withdrawal attributed fractionally to contributors immediately before withdrawal

Question 24

What are the beneficiaries proprietary claim options where an asset is purchased exclusively with trust money?

Answer 24

• assert beneficial interest
• personal claim against trustee for breach and equitable lien on the asset

Question 25

What are the beneficiaries proprietary claim options where an asset is purchased with trust money and the trustee’s own money?

Answer 25

• claim proportionate share
• lien on asset to secure personal claim for amount of misapplied money

Question 26

What are the beneficiaries proprietary claim options where an asset is purchased with trust money and innocent third party money?

Answer 26

Only claim proportionate share

Question 27

What are the beneficiaries proprietary claim options where an asset is purchased with trust money, trustee money and innocent third party money?

Answer 27

Only claim proportionate share

Question 28

Where beneficiaries may only claim a proportionate share of assets representing traceable proceeds of trust fund, and the asset is deficient in value to satisfy the amount misapplied, what would be a better option than a proprietary claim?

Answer 28

Where trustee is solvent, sue for amount of misapplied funds

Question 29

What is subrogation?

Answer 29

Where trust money dissipated by payment of secured debt, beneficiaries are subrogated to the rights of creditor

Question 30

What is the defence to proprietary claims for misapplied trust funds?

Answer 30

Bona fide purchaser for value without notice.