Tracing (last minute rev) Flashcards
Order of transactions
- D can’t use an asset he will later misappropriate from C to acquire smth (eg Serious Fraud Office v Lexi Holdings Plc)
- BUT what matters = order of the arrangements to pay and reimburse (bcs grant power to ‘exploit and use’ the money), not order in which the actual payments occur (= Arden LJ in Relfo v Varsani, applying Agrip (Africa) Ltd v Jackson)
Serious Fraud Office v Lexi Holdings Plc
Situation : D acquired home in 1998, misappropriated funds from C in 2006 so can’t have used those to purchase home since didn’t have any control over them yet
Main point: no backwards tracing
Backwards tracing (1): General rule & Durant
- General rule : you can’t trace backwards = Serious Fraud Office v Lexi Holdings Plc
- Brazil v Durant International Corp : mb where ‘there is a close causal and transactional link between the incurring of a debt and the use of the funds to discharge it’ = Lord Toulson at [34]
- Although PC confirmed that no general principle that money used to pay a debt can be traced into whatever was acquired in return for the debt
Durant Intentional Corp v Brazil
Situation :
- D company controlled by mayor of Sao Paulo & his son, they received abt £10m bribes, transferred through accs held by D
- C = municipality of Sao Paulo sought to recover the money (which D held on CT for C)
PC held that C could trace the money backwards here bcs ‘part of a coordinated scheme’ / interconnected transactions
Backwards tracing (2) : Relfo Ltd v Varsani
Situation : T = director of R transferred £500 000 out of company acc, the same day, V received £500 000 but evidential difficulties in establishing clear transaction
CA allowed R to trace into V’s acc, bcs applying Agrip : no need for transactions to be in chronological order + there was a “sufficient nexus between the acquired assets and misapplied funds”
Backwards tracing (3) : Sufficient connection ?
whether there is sufficient proximity / connection seems to turn on / be related to intention (= argument made by A in her book)
=> contrast cases such as Durant, Agrip or Varsani with Lexi Holdings
Backwards tracing (4) : Sufficient connection - A’s ag
A (Claims to traceable proceeds) : Lord Toulson in Durant suggests that sufficient link depends on D’s intention, A ag that this mirrors the case law
- Courts have refused to accept backwards tracing in sitº where, at the time where D incurred the debt, D could not have contemplated possibility of using C’s money to repay it – eg Denton v Davies
- Conversely, cases where courts have accepted backwards trancing = cases where plausible that D incurred original debt w/ intention of using C’s money – eg Hopper v Conyers
Mixed funds (1) : A’s defº
mixed fund = one where ‘the process of ‘unmixing’ the value that has gone into that asset does not involve a significant intrusion on B’s autonomy’
Mixed funds (2) : Re Diplock
Situation : D charities spent money mistakenly paid to them out of Te’s estate on phys improvements to their land
CA Held these weren’t a mixed fund, rejecting analogy btw use of money to increase value of (title to) land and putting money into bank acc (thereby increasing value of title to the bank acc)
Mixed fund (3) : Foskett v McKeown
Issue : debate abt whether using trust money to pay insurance premiums closer to improvement of existing asset (eg house) = CA’s view or increasing credit in a bank acc = Lord BW in HL
Lord BW’s ag = once physical improvement to a thing has been made, cannot be separate from the thing, which is treated as a freestanding asset ≠ mixed fund which can be divided into its constituent parts / pro-rata btw contributors – insurance closer to the latter
A’s explanation / personal autonomy ag : ?
Wrongdoers (1) : approach
uncertainty is resolved against wrongdoer
=> where W has mixed B’s money w/ his own, dissipated some, and invested some, B is allowed to pick what he wants to trace into = cherry picking
Authorities = Re Hallett’s Estate and Re Oatway
Wrongdoers (2) : Re Hallett’s Estate
Main point : T is presumed to have done the right thing and dissipated his own money first
Situation: Solicitor held bonds on trust for Mrs C, improperly sold them and mixed money w/ his own in bank acc, dissipated some money from the acc
=> Mrs C claimed to trace proceeds into his bank acc
Held (CA): that H was presumed to have dissipated his own money first, Clayton’s case didn’t apply here – cherry picking instead
Wrongdoers (3) : Re Hallett’s Estate - Jessel MR quote
“where a man does an act which may be rightfully performed […] he is not allowed to say against the person entitled to the property or the right that he has done it wrongfully”
=> T is not permitted to say ‘I dissipated the trust money and kept my own’
Wrongdoers (4) : Re Oatway
main point : If T invested some of the mixed fund, B is allowed to trace into that
Situation : In breach of trust, T paid trust money into his personal bank acc, then used some money to buy some shares and dissipated the rest
=> HC held that Bs could trace trust money into the shares, cherry picking rather than Clayton’s Case again
Wrongdoers (5) : Re Oatway - interpretation #1
If the investment’s value has increased, B is also entitled to the increase in value = interpretation of Re Oatway by Rimer J in Shalson v Russo, bcs otherwise “the wrongdoing trustee may be left with all the cherries and the victim with nothing”
