Equitable remedies

Question 1

What are the two categories of equitable remedies?

Answer 1

• Personal remedies:

Include monetary remedies such as equitable compensation (awarded in cases where a breach gives rise to loss) and an account of profits
(awarded where a wrongdoer makes a profit).

*Proprietary remedies:

Involve awarding the claimant a proprietary right
i.e claiming a constructive trust over the profit

Question 2

Remedies for the beneficiaries: Misapplication of funds?

Answer 2

1. Sue the trustee for breach of trust.
2. Sue a third party who has assisted the breach of trust.
3. Make a claim against the misapplied property or its traceable proceeds.
4. Sue a third party who knowingly received the traceable proceeds of the breach.

Question 3

When can we use the method of following, tracing and claiming?

Answer 3

Under 2 conditions:

1. The claimant had a ‘right of property recognised by equity’ in the asset which they seek to
   follow and/or trace
2. The asset was held by a person who was in a fiduciary relationship with the claimant

Question 4

What is an equitable proprietary claim?

Answer 4

Following, tracing and claiming undermining equitable proprietary claims.

3 advantages:

a) It is not affected by the defendant’s bankruptcy or insolvency.

b) It enables beneficiaries to capture increases in the value of traceable
proceeds.

c) It does not depend on fault: it can be maintained against the defaulting
trustee and against innocent recipients of the trust property or its
traceable proceeds.

Question 5

Tracing: What is tracing?

Answer 5

Simple case:
Tracing the proceeds of the trust fund to the object they were exchanged for.

Mixed funds:
2 types:
a) A mixed fund comprising misapplied trust money and the trustee’s own money (‘a wrongful
mixture’) ;

b) A mixed fund comprising misapplied trust money and money derived from one or more
innocent third parties (‘an innocent mixture’)

Question 6

Tracing: what is the BASIC RULE of withdrawals from wrongful mixtures of mixed funds?

Answer 6

BASIC RULE:

Where a trustee makes withdrawals from a wrongful mixture, some of which are dissipated, the beneficiary can treat the dissipation as the trustee’s money and attribute the
identifiable funds (or traceable proceeds) to the trust.

!Cherry picking when it comes to multiple assets:
the beneficiary can claim the most profitable one.

Question 7

What is the Clayton’s case rule?

Answer 7

In the absence of a contrary intention, payments are presumed to be appropriated to debts in the order in which the debts are incurred.

this rule applies to withdrawals form a current bank account
‘first in first out’.

Question 8

Can Clayton’s case rule be dissipated?

Answer 8

yes when,

• contrary to the intentions of the parties who contributed to the mixture;
• impracticable (ie too complex or expensive to apply); or
• Unfair

Question 9

What are the alternative methods to the Clayton’s case rule?

Answer 9

1. The pari passu ex post facto method.

Identifying the amounts contributed to the account by each individual contributor attributing all the withdrawals from the account fractionally to all the contributors,
regardless of the order in which the payments were made.

2. The rolling charge method.
   It requires the contributors’ fractional contributions to be recalculated every time a sum is credited to the account.
   The order in which the payments were made can therefore affect the amounts attributed to individuals.

Question 10

Claiming: What assets can be claimed by the beneficiaries after following and tracing?

Answer 10

• The misapplied trust property
• Assets purchased exclusively with misapplied trust money (or its traceable proceeds)
• Assets purchased with a mixed fund

Question 11

Claiming: What types of claims can the beneficiaries make?

Answer 11

4 options:

1. The beneficiary claims beneficial ownership of the asset:
   only possible in the case where the asset is acquired exclusively with the traceable proceeds of the breach.
2. Beneficial ownership of a share of the asset:
   acquired using a mixed fund.
3. Equitable lien over the asset:
   A beneficiary will want to do this where the asset has decreased in value, meaning that claiming the asset would result in a loss (making it a secured claim).
4. Subrogation:
   Where misapplied trust funds (or their traceable proceeds) are used to pay off a secured debt. It allows the beneficiary to step into the shoes of the creditor.

*Wrongful mixtures:
a) Claiming a proportionate share of the asset.

b) Enforcing a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money

*Innocent mixtures:
Can only claim the proportionate share of the asset.

Question 12

Claiming: What happens to the bona fide purchaser who was a victim of the trustees breach?

Answer 12

If the purchaser has no notice of the trust, they take clean title to the trust
property, even if it has been misapplied.

The beneficiary cannot make a proprietary claim against the purchaser, only assert an interest in the sale proceeds.