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Summary Proprietary Liability Notes
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Tutorial 7 - Proprietary LiabilityWed 6th March 2019
Essential reading
Virgo chapter 19
Recommended reading
L. Smith, ‘Tracing into the Payment of a Debt’ (1995) 54 CLJ 290
M. Conaglen, ‘’Difficulties with Tracing Backwards’ (2011) 127 LQR 432
M. Pawlowski ‘The Demise of the Rule in Clayton’s Case’ (2003) Conveyancer and Property Lawyer
339
NOTES FROM CONCENTRATE REVISION BOOK
o If trust property has remained unchanged, use FOLLOW.
o If trust property has changed in nature, then TRACE.
o Key case for these – Westdeutsche
o Equity’s darling – bona fide purchaser for valuable consideration without notice. There is no
claim against this purchaser for money.
o Personal remedy? If value of property has gone down.
o Proprietary remedy? If value has increased.
o To protect a personal claim an equitable lien can be placed on the property, which gives a
claimant a priority over claims on that property.
o COMMON LAW PROPRIETARY CLAIM
When a party receives property to which that party is not legally entitled he or she is under an
obligation to return the property to the rightful owner. The party may receive property under a void
contract or it may be received without valuable consideration.
- Strict liability.
- Property must be UNMIXED and CLAIMANT HAS LEGAL TITLE.
- Following cannot be used at common law when property has been mixed (Agip Ltd)
- Clean substitution of property for other property does not prevent the claim (Taylor v Plumer)
- Romalpa retention clause can be used for materials transfer to a company; materials never
become property of the company. Problems arise when materials used to make into other
products – case of Re Peachdart Ltd. Can lose identity.
SELL RETAINS LEGAL TITLE.
o EQUITABLE PROPRIETARY CLAIM
Tracing in equity is more flexible and can be used to trace property into mixed funds. Problem –
identifying how much of the mixed property belongs to the claimant.
Re Diplock – Must be a fiduciary relationship and an equitable interest. In a trust – will be fiduciary
relationship.
, Lord Browne-Wilkinson in Westdeutsche – a thief creates a ‘fiduciary relationship’ when he or she
takes property belonging to another. Constructive trust creates fiduciary relationship.
Lord Millett doubted whether a fiduciary relationship was even necessary: Foskett v McKeown.
Q TO ASK - Which claim will give the best financial result?
Personal claim is worthless if bankrupt/disappeared.
Once a constructive trust is established, this gives the claimant a right to trace property in equity.
IDENTIFIYING WHO HAS PROPERTY
Two categories of rules in tracing process –
1. Claims against trustee
2. Claims between two ‘innocent’ claimants
Property that is purchased with funds of 2 people is shared in proportion to contribution in resulting
trust. Sinclair case – presumption for all parties tracing property; shared rateably – pari passu.
How much of the purchased property belongs to trust in breach and how much belongs to innocent
contributor etc?
CLAIMS AGAINST TRUSTEE IN BREACH
a. Payments into overdrawn account –
Money paid in to pay an overdraft is dissipated. No asset in which to trace property.
However NB backwards tracing >>> if the overdraft was caused by buying an asset then the claimant
should have a claim on that asset. Federal Republic of Brazil case
b. Presumption of honesty –
Proportionate to contributions when money becomes mixed. Re Hallett’s
Trustee assumed to spend his or her own money first.
i.e. if the trustee buys something, there is ownership in the proportions of the contributions in mixed
account. This rule is applied even if value increases. Re Tilley’s
Not to punish the trustee but protect the property of trust fund.
NB if balance in bank was dissipated by trustee then the courts may reverse the application of Re
Hallet’s by using Re Oatway >>> money used to buy an identifiable asset is in fact that of the trust.
Any other dissipated money is that of the trustee. Preserves the property of the trust fund as much as
possible. If painting has increased in value, there is a proprietary claim. If painting has reduced in
value, claimant can place an equitable lien over property to the value of money taken to protect any
person claims. The trust funds are secured against the asset. Presumption now that the trustee
dissipated own money, not that of the trust. The seller of an asset bought here cannot be made to
return the money as the seller is Equity’s Darling. Absolute defence. NB if money given to charity or
as a gift, Equity’s Darling does not apply. The trust can ‘trace into the hands’ of an innocent volunteer.
How does the rule in Roscoe v Winder work?
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