Equitable Tracing Rules Flashcards
Who can equitable tracing claims be made against?
A trustee, a constructive trustee, or an innocent volunteer.
What are the requirements of tracing?
There must be a fiduciary relationship.
The claimant must have an equitable proprietary interest in the property.
The property must be traceable.
Tracing must not produce an inequitable result.
No unreasonable delay.
As a general rule, tracing is not allowed into a mixed fund where the innocent volunteer has mixed trust fund money with their own money. What defence can the innocent volunteer raise?
The innocent volunteer can raise the defence of change of position to stop the tracing action.
Do limitation periods applies to tracing?
No, as tracing is an equitable remedy, limitation periods don’t apply. Instead, the doctrine of laches (where there has been an undue delay in C asserting their rights) applies and can be used as a defence against tracing.
Tracing into unmixed funds:
If the trust asset is separate and not mixed, the asset can be reclaimed.
Tracing into mixed funds:
Where the trustee used trust money and their own money in a purchase, the beneficiaries have first claim over any property purchases.
The onus is on the trustee to prove that part of the mixed fund belongs to them. If proven, the assets will be divided between the trustees and beneficiaries on a pro rata basis.
Tracing into mixed funds:
Where the trustee used trust money and their own money in a purchase, the beneficiaries have first claim over any property purchases.
The onus is on the trustee to prove that part of the mixed fund belongs to them. If proven, the assets will be divided between the trustees and beneficiaries on a pro rata basis.
Tracing against another trust or against a third party:
Where the trustee had mixed the funds of two trusts, or transferred trust money to an innocent volunteer who mixed it with his own, the two funds have a pro rata claim in the mixed funds.
The two claimants share the profits/loss proportionally.
Tracing into funds mixed in bank accounts:
Where the mixed funds in a bank account belong to the trustee and the trust, the presumption when tracing is that the trustee has withdrawn his own money first. The beneficiaries have the first claim over the balance.
BUT this rule does NOT apply if the trustee purchased property using mixed funds - the beneficiaries have first cabaret over any property bought using the mixed funds (shares).
Trustee pays trust money into overdrawn bank account:
Where a trustee pays trust money into their own bank account, the money to pay the overdraft has dissipated and cannot be traced. C only has an interest in the proportion of funds that constitute the positive balance of that account.
Defences against tracing:
Change of position - open to innocent volunteers, change to personal circumstances, unfair to trace
Property has been dissipated
Bona fide purchaser for value without notice
Doctrine of laches - no limitation periods but inequitable to trace against D
