Tracing Flashcards
Foskett v McKeown [2001]
What is Tracing?
- Lord Millett – tracing is process of ascertaining what happened to the [property].’
- ‘Following is the process of following the same asset as it moves from hand to hand.’
- ‘Tracing is the process of identifying a new asset as the substitute for the old.’
- Tracing is a process used to identify property and then to establish proprietary claims over it, and if not possible, compensation
Bosacawen v Bajwa [1995]
Tracing
Tracing does not require the demonstration of fault by the parties through whose hands you trace.
Banque Belge v Hambrouck (1921)
Common Law Tracing
Tracing
- Once money deposited into wrongdoer’s bank account, if account is empty can identify money and so can be traced. However, if already contains their own funds, your money cannot be identified.
FC Jones & Sons v Jones [1996]
Common Law Tracing
- At common law have to be able to say that property is clearly identifiable as your own.
- Therefore, in a mixed bank account not possible to trace assets out of a fund because common law has no way of identifying whose assets have come out.
Mixing
- Funds mixed with wrongdoer’s funds in a bank account
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Defeats common law tracing
- NB – funds paid into an account won’t automatically defeat common law tracing, mixing will
Limitations of Common Law Tracing
- Legal proprietary base – common law only cares about legal title so unless you are the legal owner, you couldn’t use common law tracing
- Legatees and beneficiaries under a trust would not have a claim
- Agip (Africa) Ltd v Jackson [1990] – Can’t recover mixed funds using common law tracing
- Re Diplock [1948] - Absence of the, ‘far-reaching remedy of a declaration of charge’ - no proprietary claim
Advantages of equitable proprietary tracing
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Significantly more flexible rules
- Banque Belge v Hambrouck [1921] - ‘…the common law halted outside the banker’s door, [but] equity had the courage to lift the latch, walk in and examine the books.’ (per Atkin LJ]) – mixing doesn’t defeat equitable tracing
- Priority creditor status to the claimant – beneficiary or principal when they identify property owed to the
- Benefit of increase in value – equity allows proprietary claims – anything resulting from the money owed, can be recovered
- No limitation period for equity proprietary tracing
Re Diplock [1948]
Requirements for equitable proprietary tracing
- A fiduciary relationship
- Have to have an equitable proprietary interest
Chase Manhattan Bank NA v Israel-British Bank Ltd [1981]
Requirements for Equitable Proprietary Tracing
A Fiduciary Relationship
- Erroneous payment. Bank received twice what they should have received.
- Equity tracing was allowed as court ruled that on receipt of 2nd (mistaken) payment, a fiduciary duty was owed by defendant bank.
Westdeutsche Landesbank Girozentrale v Islington LBC [1996]
Requirements for Equitable Proprietary Tracing
A Fiduciary Relationship
- Credit swapping arrangements; fiduciary relationship found to be in place between a bank and a council.
Agip Ltd v Jackson [1990]
Requirements for Equitable Proprietary Tracing
A Fiduciary Relationship
‘[the fiduciary requirement is] readily satisfied in most cases of commercial fraud, since the embezzlement of a company’s funds almost inevitably involves a breach of fiduciary duty on the part of one of the company’s employees or agents.’ (per Millett J in Ch 265, 290) – case involving money laundering
Re Diplock [1948]
Requirements for Equitable Proprietary Tracing
A Fiduciary Relationship
Fiduciary relationship need not be between claimant and defendant.
Re Diplock [1948]
Equitable Proprietary Interest
- Claimant must have an Equitable proprietary interest:
- Equitable interest under a trust
- Equitable interest of beneficiaries under an estate
Into whose hands might property be traced?
- Trustee
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Innocent volunteer – someone who has received property but provided nothing in exchange for it - equity won’t assist a volunteer
- Subject to defences
- Recipient with knowledge they have committed a breach of trust/fiduciary duty
- CANNOT TRACE Equity’s darling - Bona fide purchaser for value without notice e.g. trustee sells house to bona fide purchaser, can’t get the property back, but could trace into the purchase monies.
What defeats equitable proprietary tracing?
- Where tracing would be Inequitable
- Dissipation
- Bona fide purchaser for value without notice
Re Diplock [1948]
Inequitable Tracing
What defeats equitable proprietary tracing?
- Maladministration of an estate – made charitable dispositions to a hospital but invalid.
- Trustees were unaware of this.
- Individuals who would have been entitled to the property, wanted their money back.
- Court ruled Hospital didn’t have to pay the money back as they were an innocent party and would maybe have to re-mortgage, sell equipment etc and that would be inequitable.
Foskett v McKeown [2001]
Inequitable Tracing
What defeats equitable proprietary tracing?
- Millett says that inequitability should be confined to the conditions in re Diplock.
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Diplock conditions:
- selling off pre-existing property
- dealing with a large sum - £250,000 in 1940s
- Only a defence to a proprietary claim
- Outside of this context, won’t be successful.
- e.g. you bought an MRI machine with the money you’d incorrectly received and just had to sell the MRI machine to recover the money, Diplock conditions would not be satisfied and tracing would not be inequitable.
Dissipation
Tracing
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Recipient of property has used your money on something that has no value. Therefore, nothing to trace into.
- E.g. money spent on a party, holiday, utility bills, purchase something that has been destroyed and isn’t insured
- Re Diplock [1948] - Dinner
- Re Diplock [1948] - Ongoing expenses
Re Diplock [1948]
Aesthetic Property Improvements
Dissipation
Tracing
- Aesthetic’ property improvements – e.g. repaint house – distinguish between aesthetic and non-aesthetic.
- If painting improves property’s value, not treated as dissipation and can trace into the property.
Foskett v McKeown [2001]
Aesthetic Property Improvements
Dissipation
Tracing
Browne-Wilkinson – if non-aesthetic improvements, can trace into the house but cannot recover more than your original sum.
Bishopsgate Investment Management v Homan [1995]
Dissipation
Tracing
Overdrawn bank account/high street loans are examples of dissipation
FC Jones & Sons (Trustee) v Jones [1997]
Tracing in Equity
Unified Process
- ‘there is no merit in having distinct and different tracing rules at law and in equity’ (per Millett LJ)
Foskett v McKeown [2001]
Tracing in Equity
Unified Process
- Obiter dicta in Foskett v McKeown [2001] 1 AC 102 (Lords Millett and Steyn) - suggestion should be a more unified process with more consistent requirements, e.g. why should there be a fiduciary relationship in order for equity tracing to be allowed
Shalson v Russo [2003]
Tracing in Equity
Unified Process
- ‘it cannot be said that Foskett has swept away the long recognised difference between common law and equitable tracing’ (per Rimer J in EWHC 1637, para 104)