Tracing and equitable remedies

Question 1

What are the three advantages of equitable proprietary claims?

Answer 1

-It is not affected by the D’s bankruptcy or insolvency

-It enables the beneficiaries to capture increases in the value of traceable proceeds

-It does not depend on fault: it can be maintained against the defaulting trustee and innocent recipients

Question 2

What is the process of following?

Answer 2

Following is the process of following the same asset as it moves from hand to hand. It is the process for locating misapplied trust property.

Question 3

What is the process of tracing?

Answer 3

Tracing is the process of identifying a new asset as the substitute for the old. Generally, one asset is the traceable proceed of another if there is ‘a series of direct substitutions’ between them.

Question 4

What is the process of claiming?

Answer 4

Claiming is the assertion of a personal or proprietary right in relation to misapplied trust property or its proceeds.

Question 5

What two conditions must be satisfied for a C to use the equitable following, tracing and claiming rules?

Answer 5

1. The 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 6

What are the two principal types of mixed fund?

Answer 6

1. Wrongful mixture: a mixed fund comprising misapplied trust money and the trustee’s own money
2. Innocent mixture: a mixed fund comprising misapplied trust money and money derived from one or more innocent third parties

Question 7

What are the three tracing rules?

Answer 7

1. The Hallett model
2. The Oatway model
3. The Shalson model

Question 8

What is the basic rule regarding tracing?

Answer 8

Where a trustee makes withdrawals from a wrongful mixture, some of which are dissipated, the beneficiary can treat the dissipation as the trustee’s money and attribute the identifiable funds to the trust, regardless of the order in which the withdrawals are made.

Question 9

What is cherry picking?

Answer 9

In cases where withdrawals from a wrongful mixture result in the identification of multiple assets into which a beneficiary could potentially trace, where the only contest is between beneficiary and trustee, the beneficiary can cherry pick the most profitable applications of the mixed fund to the trust money.

Question 10

What is the first in, first out rule as established in Clayton’s Case (1816)?

Answer 10

The first in, first out (FIFO) rule in Clayton’s case states that payments are made in the order they are received into an account. It’s a legal presumption that applies to running accounts, such as a bank account, when there’s no indication of a contrary intention.

Question 11

Where an asset is purchased with exclusively or misapplied trust money, what can the beneficiary choose to do in terms of a proprietary claim?

Answer 11

Asserting beneficial ownership of the asset

Making a personal claim against the trustee for breach of trust and enforcing an equitable lien on the asset