Tracing and equitable remedies

Question 1

what are tracing, following and claiming?

Answer 1

following- process of following the same asset as it moves from hand to hand (locating misapplied trust property).
tracing- identifying a new asset as the substitute for the old.
claiming- assertion of a personal or proprietary right in relation to misapplied trust property or its tracable proceeds.

Question 2

what are the tracing and claiming rules in RE DIPLOCK?

Answer 2

1. claimant had a right of property recognised by equity in the asset which they seek to follow and/or trace.
2. the asset was held by a person who was in a fiduciary relationship with the claimant.

Question 3

what are the two principal types of mixed funds?

Answer 3

1. wrongful- comprising of misapplied trust money and trustee’s own money.
2. innocent- misapplied trust money and one or more innocent third party/

Question 4

claiming assets and tracing?

Answer 4

can make a claim in respect of.
- misapplied trust property.
- assets purchased exclusively with misapplied trust money.
- assets purchased with a mixed fund.
- assets which have been improved or maintained using misapplied trust money or its tracable proceeds/

Question 5

what is the simple case of tracing?

Answer 5

• A misapplies £1000 of trust fund and uses the money to purchase the shares for £1000. can trace into shares.
• If A then sells the shares to purchase a bike then the beneficary can trace into the bike as it is a traceable proceed of the trust fund.
• Series of direct substitutions between the misapplid trust money and the bike.

Question 6

what is the case with a mixed fund and the whole mixed fund is used to acquire a single asset?

Answer 6

if A misapplies £1000 of trust money by adding it to their own account and then withdraws all the money to purchase shares then

can trace into the shares are these are traceable proceeds of the trust fund= series of direct substitutions.

Question 7

what is the Hallet model?

Answer 7

T misapplies £1,000 of the trust fund

· T pays it into their current bank account which has a nil balance

· T pays £1,000 of their own money into the account, increasing the sum credited to the account to £2,000

· T withdraws £1,000 from the account and applies it for their own benefit

· £1,000 is still credited to the account

beneficiary can trace into £1000. trustee had spent his own funds.

Question 8

what is the oatway model?

Answer 8

· T misapplies £1,000 of the trust fund

· T pays it into their current bank account which is already credited with £1,000

· T withdraws £1,000 from the account and uses it to purchase shares

· T withdraws £1,000 from the account and dissipates it.

if there is a choice between a traceable asset and a dissipation, trustee should be treated as protecting the trust funds and dissipating their own.

Question 9

what is the shalson model?

Answer 9

T misapplies £1,000 of the trust fund

· T pays it into their current bank account which is already credited with £1,000

· T withdraws £1,000 from the account and uses it to purchase shares which have increased in value

· £1,000 is still credited to the account

beneficiary can cherry pick and choose the profitable use made of the mixed fund if it does not prejudicially affect third parties.

if unsecured creditors incolved, they will get the shares (asset) to repay them and beneficiary will get what is left in the account.

Question 10

what is the general rule with the trustee mixing funds from two different trusts?

Answer 10

• withdrawals are attributed rateably to the contributors to the mixture.

Question 10

what if funds are mixed using misapplied trust money and innocent money? (not current bank account)

Answer 10

diplock applies so withdrawals are attributed rateably to the contributors to the mixture.

Question 11

innocent mixtures in current accounts?

Answer 11

• first in, first out rule- Clayton’s case.
  BUT CAN BE DISAPPLIED IF
• contrary to the intentions of the parties who contributed to the mixture.
• impracticable.
• unfair.

VERY OLD RULE.

Question 12

what are the new rules that replaced first in first out?

Answer 12

1. pari passu- amounts contributed to the account by each individual contributor attributing all the withdrawals from the account fractionally to ALL the contributors.
2. rolling charge- Each individual withdrawal is attributed fractionally to the contributors to the account immediately before the withdrawal: the fraction attributed to any specific contributor being equivalent to their fractional contribution to the account immediately before the withdrawal. This is called the ‘rolling charge’ method because it is dynamic. It requires the contributors’ fractional contributions to be recalculated every time a sum is credited to the account

Question 13

what are the two options when an asset is purchased exclusively with trust money?

Answer 13

1. assert beneficial ownershio of the asset itself (if shares increased)
2. making a person claim against the trustee for breach of trust and enforcing an equitable lien on the asset (if shares have decreased)

Question 14

what are the two options available for wrongful mixtures and asset purchased?

Answer 14

1. claiming a proportionate share of the asset.
2. enforcing a lien.

Question 15

what happens when there is wrongful and inncocent mixture and then used to buy an asset?

Answer 15

divide it equally to the money put in.

Question 16

what happens if trust money is used to maintain or improve the trustees assets?

Answer 16

1. equitable lien on the asset to secure repayment of the trust money used to maintain or improve it.
2. a proportionate share of the asset if it increases in value by reason of the maintenance or improvement.

Question 17

when trust money is mixed with the trustee’s own money to purchase an asset, can the beneficiaries claim a proportionate share in the traceable proceeds?

Answer 17

yes! percentage remember.