Remedies against trustees: Proprietary claims

Question 1

Proprietary claims

Answer 1

Claims seeking to recover:
1. original trust property; or
2. new assets represent trust property
Does not work where there is no property to recover.

Question 2

Trustee holds subsititute property

Answer 2

If a trustee has sold trust property and purchased another with sale proceeds, proprietary claim will enable the beneficiaries to recover new asset.

Beneficiary can choose:
1. take substitute property
2. to sue trustee for compensation for the loss to the trust and take a charge (equitable lien) over the property for amount of trust has lost (when property decreased in value)

Question 3

Tracing rules in case of mixed asset (1 trust + trustee funds)

Answer 3

Trustee has purchased asset with a mixture of their own money and trust’s money. In this case, beneficiary has the option of:
1. claiming proportionate interest in the mixed asset;
2. suing trustee for compensation for loss of trust and take a charge (equitable lien) over mixed asset for the amount the trust lost (if asset decrease in value)

Question 4

Tracing rules for withdrawals from a mixed bank account (1 trust + trustee funds)

Answer 4

The beneficiary can choose the tracing rule that give them the best result:
1. Tracing rule 1: Re Hallett (1880) : This rule provides that trustee is deemed to spend their own money first. Allowing to trace trust property into balance of trust account.
2. Tracing rule 2: Re Oatway
Beneficiary has the first charge on the mixed fund (i.e amount sitting in the bank account) or any property that is purchased from fund. Trustee must wait until beneficiary’s claim is satisfied before can get any property.
in both tracing rules, beneficiary can take the benefit of any increase in value in assets which they are chasing.
3. Limitation on tracing rules Roscoe v Winder: a trust interest cannot be traced beyond the lowest intermediate balance - the lowest balance to which the account sanlk before extra money paid in.

Question 5

Tracing rules for mixed asset ( trust + trust funds)

Answer 5

When a trustee take money from a number of trusts and mix together, and then buy an asset in their own name:
Beneficiaries of each trust will share **pari passu **in the mixed asset purchases.

Question 6

Tracing rules for withdrawal from a mixed account ( trust + trust funds)

Answer 6

1. Tracing rule 1: Clayton’s case (1816): between 2 or more innocents, the first money paid in is the first money paid out (First in First out FIFO rule)
2. Tracing rule 2: Barlow Clowes v Vaughan:
   FIFO rule can be departed from where:
   (a) it is impossible to apply FIFO (e.g. poor record, cannot accurately ascertain the order of payment;
   (b) FIFO would result in injustice; or
   (c) application of FIFO would be contrary to parties intention
   General rule in Clayton case can be displayed by even a slight counterweight. In case courts departed from FIFO, end result generally each trust takes a rateable share in any remaining assets.

Question 7

Tracing rule in withdrawals from a mixed bank account (trust + trust + trustee funds)

Answer 7

Truste takes money from two or more innocent trust funds and mixes with trustee’s money:
1. first should apply rules Re Hallet and Re Oatway to push as much of trustee’s own moeny into dissipation; then
2. Apply rules from Clayton Case and Barlow to allocate any remaining assets between two innocents trusts