Claims against an innocent volunteer (Equitable proprietary claims against strangers - FS

Question 1

What is an Innocent Volunteer

Answer 1

An innocent volunteer is a third party who receives trust property without knowledge of the breach of trust and without giving value (e.g. as a gift). They are not liable for wrongdoing but may still be subject to proprietary claims.

Question 2

Can beneficiaries bring a proprietary claim against an innocent volunteer?

Answer 2

Yes. Even if the third party is innocent, beneficiaries may bring a proprietary claim to recover either the property itself or a proportionate share, depending on whether the property was mixed or substituted.

Question 3

What are the tracing consequences when trust property is mixed with an innocent volunteer’s funds?

Answer 3

• The beneficiaries can claim a proportionate share of the asset purchased
• No equitable lien is available, because the recipient has committed no wrongdoing
• Both parties share ratably in the asset

Question 4

When can beneficiaries recover full ownership from an innocent volunteer?

Answer 4

• When the trust property remains unchanged
• When the property was subject to a clean substitution (e.g., used entirely to buy an asset like shares)

Question 5

What tracing rules apply to mixed bank accounts involving an innocent volunteer?

Answer 5

• Rule in Clayton’s Case: First in, first out – the earliest funds into the account are presumed to be the first withdrawn
• Exception: Rule in Barlow Clowes may apply if Clayton’s rule produces an inequitable result

Question 6

Can a personal claim be brought against an innocent volunteer?

Answer 6

No. A personal claim is not available against an innocent volunteer, because they have committed no wrong and gave no value, leaving only proprietary remedies.

Question 7

Remedies available against an innocent volunteer

Answer 7

1. Recovery of original trust property, if still identifiable.
2. Claim over substitute property, if clean substitution occurred.
3. Proportionate share of mixed asset.
4. Use of Clayton’s rule to determine loss from a mixed account

No equitable lien unless full substitution by trust funds occurs

Question 8

In the Raphael scenario, why can the trust enforce an equitable lien over the shares?

Answer 8

Because all £8,000 used to buy the shares came from the trust funds in a clean substitution, the trust can enforce an equitable lien over the shares—even though Raphael is an innocent volunteer