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Semester 2Topic 6- Equitable Proprietary Claim
Lecture 1- Tracing the Equitable Proprietary Claim 1
The wrongful transfer of property to a third party: legal responses
In equity the claimant may:
Claim that the defendant (third party) is holding the defendant’s property (equitable
proprietary claim)
Claim that the defendant is personally liable to the claimant for the value or the
return of the property (personal claims)
In common law only personal claims are available
Personal Claim: claim against the defendant for the payment of money, generally to satisfy a
debt due to the claimant or as compensation for loss
Proprietary Claim: the claimant asserts a property right over property under the defendant’s
control. Equitable property right- typically beneficial ownership- over property to which the
defendant has legal title
Important differences:
A proprietary claim binds third parties, which means:
The claim is not affected by the bankruptcy of the defendant
A claim can arise against an indirect or remote recipient if the property is passed on
A proprietary claim is affected by the loss of, or by a change in the value of, the property
that is subject matter of the claim
Equitable proprietary claim
If the trustee transfers the property in breach of trust to another (recipient)
As there was an equitable interest by the beneficiary, the beneficiary now has an
equitable proprietary claim to the recipient’s property.
, Where does the possibility of a proprietary claim end?
When legal title has passes
At equity, “title” is a relative concept, there is a hierarchy which determines who has
the strongest claim
When the property is no more: there is nothing to which the claim can attach
“Passing of title” at equity bona fide purchase
A bona fide purchaser acquires the property free of the beneficiary’s equitable interest
A bona fide purchaser is a purchaser of the legal title:
1) For value
2) Without actual or constructive knowledge of the breach of trust
The recipient’s constructive knowledge is what the recipient ought to know ie: if they made
the reasonable enquiries
Two types of recipient take subject to the equitable proprietary claim
Innocent donees or “volunteers”
Recipients with actual or constructive knowledge (wrongdoers)
Lecture 2- Tracing the Equitable Proprietary Claim 2
Tracing and Following
Foskett v McKeown (2001)- important case
“The process of ascertaining what happened to the plaintiffs’ money involves both tracing
and following. These are both exercises in locating assets which are or may be taken to
represent an asset belonging to the plaintiffs and to which the assert ownership. The
processes of following and tracing are however distinct. Following is the process of following
the same asset as it moves from hand to hand. Tracing is the process of identifying a new
asset as the substitute for the old. Where one asset is exchanged for another, a claimant can
elect whether to follow the original asset into the hands of the new owner or to trace its
value into the new asset in the hands of the same owner. In practice this choice is often
dictated by the circumstances.”
“Following” the original trust property
Limits-
Following cannot continue when the defendant acquires the property by accession or
specification
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