Tracing Flashcards
Tracing is neither a right nor a remedy but a process by which property rights can be identified in the hands of the recipients
Boscawen v Bajwa
Remedies at common law
Proprietary right of restoration - only for land historically
Personal remedy of restitution - personal claim against the recipient for the value of the property he has received
Remedies in equity
Proprietary remedies:
- equitable ownership
- equitable charge or lien - claimant can recover value of his money that went into the property
- subrogation
Personal remedy against the recipient of the property
Advantages of a proprietary remedy
- priority over general creditors on insolvency
- benefit from any increases in value
- no statutory limitation period
Tracing at common law
Claimant must have legal title; property must be identifiable; generally only a personal claim
Defence of change of position - expenditure in reliance of the payment he had received; expenditure was extraordinary
Lipkin Gorman v Karpnale - defence not available if acting in bad faith
Defendant who changed his position in reliance on an anticipated receipt may rely on defence of change of position
Dextra Bank v Bank of Jamaica
Payment of debts cannot normally constitute extraordinary expenditure
Scottish Equitable v Derby
Even though assets were of everyday nature, the amount he had acquired and expense was extraordinary
Philip Collins v Davis
Tracing at equity requirements
Re Diplock:
- fiduciary relationship
- equitable proprietary interest in property
Fiduciary relationship may be between claimant and person who transferred property to defendant
Re Diplock
Solicitor and client
Re Hallett’s Estate
Fiduciary relationship easily found
Black v Freedman - thief
Property can be traced into the hands of:
- person who misapplied it
- person who received it with knowledge
- innocent volunteer
NOT a bona fide purchaser for value without notice
Money paid into overdrawn bank account cannot be traced
Bishopsgate v Homan
Money used to pay off unsecured debts cannot be traced
Re Diplock
If wrongdoer has used trust funds to purchase other property, the claimant has a choice of remedies
Re Hallett’s Estate: claimant can take property or have a charge over the property for the amount of money expended
Where trust money has been mixed with other funds, beneficiaries have right to a proportionate share of the property acquired or an equitable charge
Foskett v McKeown
Claimant’s property used to improve an innocent volunteer’s pre-owned asset and no value added
Re Diplock - money is dissipated and cannot be traced
Claimant’s property used to improve an innocent volunteer’s pre-owned asset and value is added to asset
Trust would not be entitled to proportion of the value of the asset, but ‘at most a proprietary lien’ over the asset - obiter in Foskett v McKeown
Subrogation - secured debt paid of with misappropriated assets, subrogation allows debt to be revived in favour of the party whose money was used to pay off the original debt
Boscawen v Bajwa
Where claimant’s money is paid into the wrongdoer’s bank account and mixed with the wrongdoer’s money, the claimant has an equitable charge on the bank account for the amount paid in
Re Hallett’s Estate
Presumption of honesty - dissipated money is that of the trustee who rightfully used his own money
Re Hallett’s Estate
Rebuttal of presumption of honesty (total dissipation)
Re Oatway
Where property bought using trustee and beneficiary’s money, beneficiary may choose to have an equitable charge or proportionate share of the property
Foskett v McKeown
Suggestion that claimant should first trace into any remaining funds, not cherry pick
Turner v Jacob
Suggestion that innocent party should be able to trace into what they want as the guilty party shouldn’t gain
Shalson v Russo
Lowest Intermediate balance rule - if wrongdoer spends claimant’s money and then pays in money of his own, this is not repayment unless trustee shows such intention
Roscoe v Winder
If account is exhausted during the intermediate period, the beneficiaries cannot trace at all
Bishopsgate v Homan
Trust property mixed with innocent volunteer: deposit accounts
Two funds share rateably - Re Diplock’s Estate
Trust mixed with innocent volunteer: current accounts
First in first out - Re Clayton’s Case, confirmed in Barlow Clowes
First in first out not to be applied if:
- contrary to express or implied intentions of the claimants
- it is impractical
- it will cause injustice
(Barlow Clowes)
Loss of right to trace and claim in equity
- Inequitable - Re Diplock’s Estate - spent money improving pre-owned property
- bona fide purchaser for value without notice
- property is not identifiable
There will be no personal action against an innocent volunteer who dissipated trust property before he was aware it was such
Re Montagu’s Settlement
A personal action will only arise against a recipient whose knowledge of the provenance of the property would make it unconscionable for him not to return it
BCCI v Akindele
Personal action in Re Diplock
Where money is wrongly paid out in administration of an estate, a personal action is available against those who received money, but unpaid beneficiaries should first sue the personal representative who has acted wrongly
