Tracing and Equitable Proprietary Claims Flashcards
Why are proprietary remedies useful compared to personal ones?
Claimant can use following and tracing rules
Ringfenced against the insolvency of the trustee
Bs can capture increases in value of traceable proceeds
Does not depend on fault - can be maintained against defaulting trustee and against innocent recipients of trust property
What options are available when a trustee misapplies funds?
Sue the trustee for breach of trust
Sue a third party who has assisted the breach
Make a claim against the misapplied property or its traceable proceeds
Sue a 3rd party who knowingly received the traceable proceeds of the breach
When is a claimant able to use the equitable tracing and claiming rules?
Claimant had a right of property recognised by equity
Asset was held by a person who was in a fiduciary relationship with the claimant
What are the various types of proprietary claim?
claiming beneficial ownership of the asset - exclusively with traceable proceeds of the breach
Beneficial ownership of a share of the asset - mixed fund
Beneficiary claims an equitable lien over the asset - Good option where asset has decreased in value - claiming the asset would result in a loss
Subrogation - funds / TP are used to pay off a secured debt - B becomes the secured creditor and can take the equivalent security
What is the main defence to an equitable proprietary claim?
Purchaser of a legal interest without notice of the trust
What is following?
Following the same asset as it moves hand to hand
What is tracing?
Identifying a new asset as the substitute for the old
What is claiming?
Assertion of a personal or proprietary right in relation to misapplied trust property or its traceable proceeds
What is a ‘wrongful mixture’?
Mixed fund comprising misapplied trust money and trustee’s own money
What is an ‘innocent mixture’?
Misapplied trust money and money derived from one or more innocent third parties
What is the basic rule regarding withdrawals from wrongful mixtures?
B can treat the dissipated money as the trustee’s money and the identifiable funds / TP to the trust - regardless of the order of the withdrawals
What is ‘cherry picking’ and when does it apply?
Withdrawals from a wrongful mixture used to acquire multiple assets - B can attribute the most profitable applications of the mixed fund to the trust money
Only applies when contest is between B and the trustee only
If there is another party e.g. unsecured creditor - basic rule applies, but B cannot cherry pick
What are the two most common examples of innocent mixtures?
Money from two or more trusts is mixed by a common trustee
Innocent recipient of misapplied trust money mixes it with their own money
What is the general rule applying to withdrawals from an innocent mixture?
They are attributed rateably to the contributors to the mixture
What is the rule applying to innocent mixtures in current bank accounts?
General rule - Re Clayton - first in, first out
Rule is disapplied when unfair - almost always displaced
options - pari passu ex post facto or rolling charge method
RC method has never been applied
PPEPF: Identify fractionally to all contributors, regardless of the order in which payments were made
What can a beneficiary chose between when an asset is purchased exclusively with trust money?
Asserting beneficial ownership - proprietary - increased in value
Making a personal claim and enforcing an equitable lien on the asset - decreased in value
What can a beneficiary elect between when an asset is purchased with a wrongful mixture (misapplied trust money + trustee’s money)?
Claiming a proportionate share of the asset - capturing a corresponding proportion of the increase
Enforcing a lien
What can a beneficiary do when an asset is purchased with misapplied trust money and innocent 3rd party (innocent mixture)?
Claim a proportionate share of the asset
