Tracing and Proprietary Claims

Question 1

what are the benefits of making an equitable proprietary claim or tracing into an asset?

Answer 1

• not affected by D’s bankruptcy or insolvency
• enables Bs to capture increases in value of traceable proceeds
• does not depend on fault or dishonesty (like accessory or recipient liability) - the recipient can be innocent

Question 2

what types of assets can a B make a proprietary claim over? (4)

Answer 2

(1) misapplied trust property

(2) assets purchased exclusively with misapplied trust money or its traceable proceeds

(3) assets purchased with a mixed fund (some trust money and some not)

(4) assets which have been improved or maintained using misapplied trust money or its traceable proceeds

Question 3

what types of proprietary claims can a B make and when are each appropriate? (4)

Answer 3

(1) claim beneficial ownership of the asset = where asset acquired exclusively with traceable proceeds of breach - good where asset increased in value

(2) claim a share of the asset = where asset purchased with mixed funds - good where asset increased in value

(3) claim equitable lien over the asset = good where asset decreased in value - turns B’s personal claim for breach of trust into a secured claim

(4) subrogation = where misapplied funds are used to pay a debt, B can step into the shoes of the creditor treating B as if they loaned the money

Question 4

what is a defence to an equitable proprietary claim?

Answer 4

B cannot claim against a bona fide purchaser without notice of the trust acquired the asset for consideration

Question 5

if a bona fide purchaser for value acquired the asset, what are B’s options? (2)

Answer 5

(1) assert interest in sale proceeds (but if dissipated then no proprietary claim)

(2) personal claim against T / accessory / person with knowing receipt