Following and Tracing Flashcards
What is the distinction between following and tracing in Foskett v McKeown [2001]?
Following is identifying the same asset; tracing is identifying a substitute asset. Lord Millett made this distinction.
What did Foskett v McKeown say about life insurance payout?
£20k of trust money paid part of life insurance premiums, allowing beneficiaries to trace into that proportion of the payout.
What did Independent Trustee Services Ltd v GP Noble Trustees Ltd decide about the bonafide purchaser protection?
When a contract is rescinded, and property reverts to the seller, the seller cannot rely on bona fide purchaser protection against existing equitable rights.
What tracing principle was established in Re Hallett’s Estate (1880)?
If trust and personal funds are mixed and the trustee spends money, beneficiaries can trace into the remaining balance in account.
What does Re Oatway allow a beneficiary to do when a trustee misuses funds?
If trustee makes a purchase with trust money, eg/ buys a yacht, beneficiaries can trace into the yacht instead of money in the account.
What strategy do Re Hallett and Re Oatway together allow for beneficiaries?
Cherry-picking—beneficiaries can choose to claim either the purchased asset or remaining funds, whichever benefits them more.
What principle from Clayton’s Case was challenged in Barlow Clowes v Vaughan (1992)?
FIFO (First-In-First-Out); the court instead allowed pari passu (rateable distribution) in cases where FIFO would be unjust or impractical.
When will courts in Barlow Clowes reject Clayton’s FIFO rule?
When (discretionary):
It involves large-scale fraud
It’s too difficult or costly to apply
It contradicts contributors’ intentions
It would result in injustice
What is the principle of backwards tracing recognized in Relfo Ltd v Varsani (2014)?
It allows tracing into assets acquired in anticipation of receiving trust funds, as part of a coordinated scheme.
What is the general rule and key exception to backwards tracing in Federal Republic of Brazil v Durant (2015)?
General rule: no backwards tracing.
Exception: allowed where there’s a close transactional link, as part of a pre-arranged, integrated scheme involving use of trust funds.
What is the main argument in T Cutts, ‘Tracing, Value and Transactions’ (2016)?
Traditional tracing rules are too simplistic for modern financial systems and should evolve to handle complex transactions.
