Tracing Flashcards
What is the concept of tracing?
The process of identifying where the trust property/asset is and seeking a remedy in relation to it.
A proprietary process.
Made up of following and tracing?
When would following be appropriate?
When the actual trust property has moved between different hands but can still be identified.
E.g. Tee takes £10k out of a trust for £50k and gives it to their sister. The property can be followed to the sister.
Going after the asset itself, rather than just its value.
When would tracing be appropriate?
When the trust property has been used to purchase something - the asset can be traced into this new asset, which would substitute for the trust property.
E.g. Tee uses £10k out of £50k trust fund to purchase an oil painting. By could claim for the painting.
Going after the value of the asset, rather than the asset itself.
Which case described following? What was the description?
Foskett v McKeown (2001)
per Lord Millett: following is the process of following the same asset as it moves from hand to hand”
How does common law tracing work?
There must be a clearly identifiable, clean substitute for the trust property. Taylor v Plumer (1815)
Property must not have been mixed. E.g. Tee sells house that is the trust property, but proceeds from sale are kept separate from other monies. Common law tracing could work here.
How does equitable tracing work?
Used more frequently than common law tracing
Can trace through a mixed fund.
Requirements:
- Claim is based on pre-existing fiduciary relationship: either claimant was a beneficiary or person who transferred property was in a fiduciary position
- Property must be in traceable form
- Must be equitable to trace
What is the doctrine of the honest trustee? Which case is this doctrine from?
In equitable tracing. Where trustee mixes trust property with own monies, and then withdraws money from the account - assumption that what they withdrew is their OWN money, and that they left in the account the trust property
Re Hallett’s Estate (1879) - not a presumption of fraud or dishonesty
What is the lowest intermediate balance rule? Name a case to support.
The idea that when trust and personal funds have been mixed, and the trustee removes some money from this mixed fund, the beneficiary can only lay claim to the lowest amount that remains in the account at that time. So, if trustee then puts MORE money into the account afterwards, beneficiary does not have a claim to this extra amount. James Roscoe (Bolton) Ltd v Winder [1915]
What is the rule from Clayton’s case?
The first-in, first-out rule. Would apply where an account has mixed two trust funds - so money from Trust A is deposited first, followed by that from Trust B. If money is removed, Trust A’s is held to have come out first. Beneficiary of Trust A will have no equitable right to trace, whilst Beneficiary of B will be able to trace their money if it remains in the account.
–> reaffirmed in Barlow Clowes v Vaughan [1992]
What is a rolling charge?
Pari-passu rule. Never been applied in English courts.
What is the beneficiaries’ right of election?
When a trustee has bought something with the trust asset and this constitutes a breach of trust, the beneficiary can choose to accept the thing as a substitute of the original asset, or they can choose the right to possess the thing until what is owed them is paid back - a lien.
