Tracing and equitable remedies

Question 1

What is following and tracing?

Answer 1

Following is where you can ‘follow’ the funds to be recovered
Tracing is where you cannot follow the original funds, so you obtain the substitute

Question 2

In the case of wrongful mixture, whose money is withdrawn first?

Answer 2

The trustee is presumed to have acted honestly, and spent their own funds first.

Question 3

If the funds have been spent on multiple things, can the trustees ‘cherrypick’ the asset?

Answer 3

Yes, unless it would prejudice a creditor- i.e if they are bankrupt or insolvent

Question 4

What are the three rules for when money is mixed innocently?

Answer 4

First in First out- simple default rule- will be disapplied if results in unfairness

Pari Passu- this adds up the money and then divides it up, eg each person gets 1/3 of whatever.

Rolling Charge- this applies logic and fairness.

Question 5

What are the claims that can be made?

Answer 5

1) Equitable ownership- Asset acquired entirely with traceable proceeds, maintains or increases in value

2) Proportionate share- Asset acquired with wrongful mixture- increases in value OR asset acquired with innocent mixture

3) Lien- asset acquired entirely with traceable proceeds- decreases in value OR Asset acquired with wrongful mixture- decreases in value

4) Subrogation- Traceable proceeds used to pay off secured debt