Proprietary claims Flashcards
(27 cards)
What can a beneficiary establish a trustee misapplies trust funds?
An equitable proprietary claim against property or its traceable proceeds
List three advantages of establishing an equitable proprietary claim for misapplied trust funds.
- Not affected by the defendant’s bankruptcy or insolvency
- Enables beneficiaries to capture increases in the value of traceable proceeds
- Does not depend on fault
What does ‘following’ refer to in the context of trust property?
Following the same asset as it moves from hand to hand
This concept allows the claimant to track the asset’s movement.
Define ‘tracing’ in relation to misapplied trust property.
Identifying a new asset as the substitute for the old
What does ‘claiming’ mean in the context of trust property?
Assertion of a personal or proprietary right in relation to misapplied trust property or its traceable proceeds
What are the two conditions a claimant must satisfy to use the equitable following, tracing, and claiming rules?
- Claimant has a ‘right of property recognised by equity’ in the asset
- Asset was held by a person in a fiduciary relationship with the client
Re Diplock
In which situations will the court acknowledge the satisfaction of Diplock conditions?
- Misapplication of trust property subject to an express trust
- Trusts arising by operation of law
- Misapplication of estate property by an executor
- Misapplication of company property by a director
Therefore Diplock criteria are not strictly applied
What are the two types of mixed funds?
- Wrongful Mixture: a mixed fund misapplying trust money and the trustee’s own money.
- Innocent Mixture: a mixed fund misapplying trust money with money derived from one or more innocent third parties.
What can a beneficiary claim in respect of misapplied trust property?
A beneficiary may wish to make claims in respect of:
1. The misapplied trust property.
2. Assets purchased exclusively with misapplied trust money (or its traceable proceeds).
3. Assets purchased with a mixed fund.
4. Assets which have been improved or maintained using misapplied trust money or its traceable proceeds.
What are the four potential claims a beneficiary can make in relation to misapplied property?
- The beneficiary claims beneficial ownership of the asset itself.
- The beneficiary claims a share of the asset (where the asset has been acquired using a mixed fund).
- The beneficiary claims an equitable lien over the asset (security claim) where the asset has decreased in value.
- Subrogation, where misapplied trust funds are used to pay off a debt, allowing the beneficiary to step into the shoes of the creditor.
What is the Simple Case in tracing rules?
Where an asset is acquired exclusively with misapplied trust money (or its traceable proceeds). The equitable interest is the asset.
What is the simplest case for withdrawals from wrongful mixtures?
It is simplest when the whole of a mixed fund is used to acquire a single asset - can trace into the asset
What are the three tracing rules established by courts for wrongful mixtures?
- Hallet Model: Money used for personal benefit is the trustee’s own; remaining money is trust money.
- Oatway Model: Dissipated money is the trustee’s own; non-dissipated money is trust money.
- Shalson Model: Beneficiary can attribute trust money to the most profitable use made of the mixed fund.
What is the basic rule for withdrawals from wrongful mixtures under the tracing rules?
Where a trustee makes withdrawals from a wrongful mixture, some of which are dissipated, the beneficiary can treat the identifiable funds (or traceable proceeds) to the trust, regardless of the order in which the withdrawals are made.
What is cherry picking in the context of wrongful mixtures?
In cases where withdrawals result in multiple assets, the beneficiary can attribute the most profitable applications of the mixed fund to the trust money when contesting only with the trustee.
The beneficiary can not do this if they are competing with unsecured creditors - the beneficiary cannot attribute the most profitable applications to the misapplied trust money.
What are the two types of withdrawals from innocent mixtures?
- Money from two or more trusts mixed by a common trustee.
- An innocent recipient of misapplied trust money mixes it with their own money.
What is the general rule for withdrawals from innocent mixtures?
Withdrawals are attributed rateably to the contributors to the mixture.
When is the general rule regarding innocent mixtures not applied and what is applied instead?
When money is withdrawn from a current account. One of three methods will instead be used:
1. Rule in Clayton’s case
2. Ex post facto method
3. Rolling charge method
What is the Rule in Clayton’s Case?
It states that it is the sum first paid in that is first drawn out. This rule can be disapplied when it is impracticable, unfair, or contrary to the intentions of the parties who contributed.
What is the Ex Post Facto Method?
A static method involving a single calculation after the event, identifying amounts contributed by each individual and attributing withdrawals fractionally to all contributors, regardless of payment order.
What is the Rolling Charge Method?
Each withdrawal is attributed fractionally to contributors immediately before the withdrawal, with the fraction attributed being equivalent to their fractional contribution at that time. This method should be applied as a principle, but no examples of it have been applied to date.
What can a beneficiary do when an asset is purchased exclusively with trust money in a proprietary claim?
The beneficiary can choose between asserting beneficial ownership over the asset or making a personal claim for breach of trust and establishing an equitable lien over the asset.
What options does a beneficiary have when funds are mixed and misapplied?
The beneficiary can choose between claiming a proportionate share of the asset or enforcing a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money.
What happens when trust property is misapplied to maintain or improve the trustee’s assets?
Beneficiaries are entitled to either an equitable lien on the asset to secure repayment of the trust money used to improve it or a proportionate share of the asset if it increases in value due to the maintenance or improvement.
