These are notes on tracing created in 2019. They follow a structured format which condenses the relevant case law, statutory provisions and academic opinion that are relevant to the topic to aid with exam revision.
Equitable proprietary claim and tracing: Chase Manhattan Bank v Israel- Fiduciary
relationship/duty arose when a brank received money
Definition: from another under a mistake of fact
Tracing refers to the process of tracing trust property Property is in a traceable form, if it is not a remedy is
from the point at which it is misappropriated unavailable as equity does nothing in vain (Re Diplock)
(unauthorized use) to the point at which it dissipated Can be used for mixed funds
Refers to the process itself and not to the claim. Once Scenario 1- Where the defendant’s money is mixed with the
property has been traced, the claimant must decide claimant’s money:
were to base their claim
Re Tiley’s Will Trust - The onus is on the defendant to
Two types: distinguish the separate assets and if he cannot then
Proprietary claim: Reclaim he trust property and any they will be subjected to an equitable charge.
profits made/substitute assets/ All claims based on the Beneficiary will be entitled to every portion of the
tracing process are proprietary in nature because they blended property which the trustee cannot prove to be
attach themselves to the trust property. his own
Personal claim: Action against the trustee/fiduciary or Once the equitable charge has been established, you
any third party who has been in knowing receipt or has must look at what has happened to the money
dishonestly assisted the breach. All personal claims are Two presumptions:
based on the wrongdoing of the defendant and require
them to restore the trust/principal to the same position Normal/Hallet presumption- will be that the defendant
they would have been in prior to the wrong occurring has intended to spend his own money first (Re Hallet)
Foskett v Mckeown – Tracing is not a claim or remedy, it If this leads to an unfair outcome, the claimant can rebut
is a process by which a claimant demonstrates what this presumption and presume that the claimant’s
happened to his property money has ben spend first (Re Oatway Presumption)
Claimant can choose which presumption to follow and
Common law tracing: this will depend on the circumstances and what will suit
Claim is based on legal title them best
Taylor v Plumer - A beneficiary may trace trust property Mixed funds and assets- Where the claimant’s money becomes
as long as it still identifiable and unmixed with other mixed with other innocent third parties:
funds
Banque Belge v Hambrouk – This applies even where Sinclair v Brougham - Before being transferred out the
the property has been transferred to a third party. Even money will be presumed to be held on an equal basis in
though the money was passed to a third party, it was proportion to the defendant’s relative contribution
still traceable at common law as the funds had not Re Clayton- For current accounts, when the money is
mixed moved out it follows the first in, first out rule
Trustees of the Property of FC Jones v Locks – Where Rule is a rebuttal presumption which can be rebutted by
trustee has invested property at a profit, tracing extends demonstrating that it will lead to an unjust result
to profit as well as original property Barlow v Vaughan- The rule in Clayton will not apply in 3
situations
Limitations: 1. It would be impractical (because of difficulty or expense
Agip (Africa) Ltd v Jackson - Funds cannot be traced into involved in ascertaining order of payments)
mixed assets, common law tracing breaks down when 2. It would result in an injustice
funds are mixed 3. It would be contrary to the party’s intentions
Must be able to identify the physical asset (rather than When tracing fails:
value)
The claim can be defeated by a bona fide purchaser Dissipation of the asset (asset is gone)
The claim is personal and is directed to the claimant’s Roscoe v Winder- Lowest intermediate balance, the
personal funds only beneficiaries cannot claim anything above the lowest
balance to which the account sank after the rust money
Tracing in equity: was paid in, any money deposited after the trust money
Usually used by beneficiaries against trustees because in was deposited is not claimable
common law beneficiaries have no interest in trust Backwards tracing:
property against the trustees
3 conditions for tracing to apply in equity Bishopsgate Investment Management v Hoffman- This
Claim must be founded on an initial fiduciary describes the process of attempts made to trace into
relationship assets already owned
Re Diplock- Whenever there is an initial fiduciary Backward tracing is not allowed
relationship, the beneficial owner of then equitable Foskett v Mckeown- Recognized the principle of
interest in property can be traced in the hands of backwards tracing but didn’t come to a verdict.
anyone holding the property except a bona fide Suggested the availability of equitable remedies should
purchaser for value without notice. depend on the substance of the transaction and not the
strict order in which events happen
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