Proprietary Remedies - Tracing

Question 1

FOUR advantages of using proprietary remedies -

Answer 1

1. Provides claim to specific property.
2. Gives beneficiaries priority over general creditors in the event of the insolvency of the defendant.
3. Includes increases in the value of the property and any further profits made with it.
   - Will have choice over recovery (if defendant is a wrongdoer, if not then only half) e.g. if £100,000 is traced into a £200,000 house, Claimant may claim a charge on the house for 100k or a charge on the house for half its worth (useful where there may be increase or decrease in value)
4. Better limitation periods than for personal claims

Question 2

What three forms of proprietary remedies can be used?

Answer 2

1. ownership rights under a constructive trust so may claim to be the sole owner of the trust property
2. claim to own a proportion of the property under a constructive trust
3. security rights – some kind of charge over the property

Question 3

2 possible routes beneficiaries can take in seeking a proprietary remedy

Answer 3

following and tracing

Question 4

What’s the difference between following and tracing?

Answer 4

Following is following the trust property and assert a proprietary claim against anyone who has that trust property now i.e. physically locating the trust property as it moves hand to hand

Tracing is where you can trace the value into other property acquired in exchange for it and then assert a proprietary claim against that other property

NB - until quite recently it used to be just tracing which covered everything so there may be lack of clarity in older cases when they use the terms “tracing claim” or “tracing remedy” - tracing is a process

Question 5

What is the definition of the process of tracing according to the Pearce and Stevens textbook?

Answer 5

“ways in which a person who is entitled to property can continue to assert a claim to the property even if it is now in the hands of someone else, or even if it has been mixed with other property.”

Question 6

Lord Steyn’s definition of tracing

Answer 6

in Foskett v McKeown [2000]

“In truth tracing is a process of identifying assets: it belongs to the realm of evidence.”

Question 7

What circumstances using bring about a claim against a stranger who received the trust property as a liable constructive trustee to restore the trust fund?

Answer 7

in most, if not all, cases of tracing or following, the trustee will have acted in breach of trust and will personally be liable for any loss caused
BUT… if the trustee in breach is insolvent then then any remedy the beneficiaries may be able to maintain against them for breach of trust will be useless as a means of restoring the trust fund

Question 8

Even though equitable tracing rules are just about pure property rights how is there a moral dimension to tracing rules in equity?

Answer 8

The equitable tracing rules are harsher against a wrongdoer who misappropriates property than against an innocent party.

ALSO - the presumptions on which the equitable rules are founded also take account of the moral blameworthiness of the parties whose funds have mixed.

Question 9

Case which defined what an innocent volunteer is

Answer 9

Boscawen v Bajwa [1995] - CA

- To be innocent a person should neither know nor have reason to suspect the money or property is not his own

Question 10

Case which held that the parties were not innocent volunteers but fiduciaries as they knew that the money received was money held on trust and was only available to D upon completion of sale.

Answer 10

Boscawen v Bajwa [1995]

FACTS - Bajwa had agreed to sell his house to another. The Abbey National BS had agreed to lend money to the purchaser. This money was paid to the purchaser’s solicitors in anticipation of completion of the purchase but they sent it to Mr Bajwa’s solicitors before completion. His solicitors mixed it with some of his own money and used it to pay off a charge on the property. The sale then fell through.

HELD - Bajwa and his solicitors weren’t innocent volunteers and the money could be traced into the property charge that was offset

Question 11

Authority that if a wrongdoer has used trust property to acquire an asset and then gives that asset away, the donee cannot get a better title than the wrongdoer so the stricter rules apply

–> look this up cos im confused

Answer 11

Foskett v McKeown

Question 12

What happens if the trust property has been exchanged for other property?

Answer 12

this is a direct substitute -
The beneficiaries are entitled to trace into the exchange product. It will follow value through unlimited changes before as long as that value is KEPT SEPARATE

Question 13

Case which emphasised that tracing is all about pure property rights.

Answer 13

Foskett v McKeown – HoL

FACTS – a trustee wrongfully used trust money to pay the premiums due under his insurance. Court held that equitable tracing was available against a trustee who has wrongfully misappropriated trust property, because the beneficiary retains his equitable interest in the trust property.
- this is an example of a direct substitute

Question 14

Criticisms of the equitable tracing rules for direct substitutes

Answer 14

1. the tracing rules are concentrating on the rights of the claimant vs those with the benefit to the property and doesn’t take into account other creditors.
2. e.g. dealing with an innocent volunteer, he’s given some proceeds of sale to a child of his and that child has no reason to expect that the property isn’t his fathers and therefore thinks it is genuinely given to him.
   - Also, let’s say that the child uses that money to buy an asset which the child could have bought with his own money but IN FACT used the trust money. Since we can trace through direct substitute it would be irrelevant that the child could have bought the property even if he never intended to use the trust property, the property belongs to the beneficiaries.
   - That’s even more unfair if the purchase has a profit because that would also belong to the beneficiaries.

Question 15

An extreme example that highlights the potential for unfairness in the equitable tracing rules for direct substitutes

Answer 15

An innocent volunteer and gives his child some money, child uses some of that money to buy a lottery ticket and wins. That lottery ticket would belong to the beneficiaries and therefore the winnings would belong to the beneficiaries.

where the child didn’t know he was using trust funds, never intended to use trust funds – the beneficiaries get the winnings and the child loses the winnings and also if the child has any creditors then they can’t claim.

Question 16

Example of the rule that where assets are bought partly with the claimant’s money and partly with the defendant’s money, the claimant is entitled to a proportionate share of the asset

Answer 16

Foskett v McKeown -
T used trust funds to pay some premiums on a life insurance policy. The funds were traced into the policy and from there into the proceeds paid out after the death of T.
- The beneficiaries were held to be entitled to a proportionate share of the proceeds of the insurance policy

Question 17

What happens if the claimant’s property or the value of the claimant’s property has been dissipated?

Answer 17

not possible to make a proprietary claim

NB - That’s not saying no claim can be brought, just a proprietary claim can’t be brought

Question 18

What are the 3 most likely avenues available to a claimant whose property has been dissipated, preventing them from bringing a proprietary claim?

Answer 18

1. Could bring a personal claim – for the value i.e. compensation
2. There may be a breach of trust or breach of fiduciary duty
3. Or personal liability imposed on the basis of knowing receipt (discussed in the next topic)

Question 19

What is a claim for a proprietary right in a mixed fund dependent on?

Answer 19

Whether the mixture consists of trust money and the money of a wrongdoer or trust money and the money of an innocent volunteer.

Question 20

Where do you start when considering a claim against a wrongdoer which has mixed funds?

Answer 20

Re Hallett’s Estate (1880)

Question 21

What is the presumption in Re Hallett’s Estate (1880) for claims on accounts with mixed funds against a wrongdoer?

Answer 21

Where the account balance has been reduced by withdrawals which have been dissipated, the court will presume that the remaining balance represents the trust property and that the wrongdoer’s own money has been dissipated.

this presumption that the trustee has preserved trust money and spent his own first is also known as the ‘irrebuttable presumption’

Question 22

Re Hallett’s Estate (1880)

Answer 22

FACTS - solicitor, who was a trustee of his own marriage settlement, was entrusted with money by a client for investment. He paid money from the trust and his client’s money into his bank account which also contained some of his own money. Made various payments using this account. On his death, the account contained enough money to satisfy the claims of the trust and the client, but not his other creditors.
- Question was whether the money in the account could be said to be the property of the trust and client, in which case they would gain priority over the general creditors.

HELD - the trustee must be presumed to have spent his own money first and to have preserved the trust monies. therefore the money in account was seen as all trust money which is given priority over the general creditors.

Question 23

Which case is regarded as modifying the rule in Re Hallett in certain circumstances?

Answer 23

Re Oatway [1903]
- Where application of the presumption in Re Hallett’s would have facilitated an injustice then the opposite presumption applies i.e. the trustee spent the trust money first.

Question 24

Rule which can enable tracing of trust money from mixed funds from a wrongdoer where there is no money left in the bank account

Answer 24

Re Oatway [1903] -
FACTS - Trustee mixed his own money and trust money, he bought shares with the money then dissipated the rest on other purchases. So a strict application of Re Hallett’s would say that when the trustee bought the shares he did so rightfully and was using his own money and thence would be part of his general assets.

HELD - the trust money could be traced into the shares even though it was the first purchase.
Where no money remained in the account a beneficiary was entitled to claim shares bought with money first withdrawn (where the money later withdrawn had been dissipated) on the grounds the trustee was taken as owning any monies not recoverable and he was not free to use his own money free of the rights of the beneficiaries until the trust fund had been restored

Question 25

Why is it argued that Re Hallett's Estate and Re Oatway aren't actually in conflict with each other?

Answer 25

Because it is still applying the general principle that the trustee should be estopped from asserting that he has preserved his own money at the expense of trust funds i.e. preventing the wrongdoer from benefitting.

Question 26

What happens if the wrongdoer has withdrawn money from the account with mixed funds and it has been used to make a profitable investment?

Answer 26

Apply the Turner v Jacob [2006]

Question 27

Case which shows at common law property can't be traced through a mixed bank account. So in exam always quote and say we will trace in equity.

Answer 27

Agip (Africa) v Jackson - | Claimants money could be traced into the first wrong bank account but could not be traced out of it.

Question 28

for a personal action against a 3rd party - in a COMMON LAW personal claim you can't trace into the hands of a bona fide purchaser for value without notice. Consideration need not be adequate. Therefore money used to pay off debts cannot usually be traced

Answer 28

Lipkin Gorman v Karpnale - once the breach has been established it is 'unjust' for the recipient to retain the benefit FACTS - solicitor removed money from a client account and used the money for gambling at the playboy club. this was a breach of the solicitor's fiduciary obligations. the playboy club received that money under a void contract (gambling contracts were void at the time). as the playboy club had no legal claim to the money it was required to return its value to the 'real' owner even though the playboy club was unaware of the breach by the solicitor, it was the fact that it had received the money that gave rise to the claim for restitution. the club had to return the value received (subject to defences)

Question 29

Example of where subrogation could be used i.e. standing in someone else's shoes CHECK THIS IS RIGHT

Answer 29

Boscawen v Bajwa Standing in somebody else's shoes. For insurance purposes in tracing. Works in the case of secured debts e.g. Mortgage. Same terms are preserved, so when claimant steps into mortgagee's shoes may have to wait long for full repayment...

Question 30

Presumption of honesty when making a claim of mixed funds against a wrongdoer. Had an equitable charge on a mixed bank account. When a defendant makes a payment-out, it is presumed that it is his own money which he pays out first.

Answer 30

Re Hallett's Estate (1880)

Question 31

Case which discusses what would happen where a trustee (wrongdoer) mixes his own money with trust funds and then makes a profitable purchase, but leaves enough money in the mixed account to satisfy the claims of beneficiaries

Answer 31

Turner v Jacob [2006]

Question 32

What is the 'irrebuttable presumption'?

Answer 32

Derived from the decision in Re Hallett's - Where there is some money in the account of mixed funds, but it's insufficient to satisfy the beneficiary’s claim the trustee (wrongdoer) is presumed to have preserved trust money and spent his own first

Question 33

Arguably what claim could be brought in this example situation - Tim pays £20,000 of trust money into bank account with some of his own money. £10,000 remains in the account; £20,000 has been withdrawn and successfully invested in shares in Defco Plc.

Answer 33

The situation doesn't easily fit within any of the authorities - options - 1. Do you say that by extending Re Hallett’s and Turner v Jacob the beneficiaries have to start by claiming the money remaining in the account and then they can only claim a proportion of any asset bought? 2. do you say there are no cases in point, the trustee has clearly not preserved the trust fund and so we can decide what we want? - But then if we decide what we want then what do we do? – do we give beneficiaries the choice? Do we give beneficiaries a proportion of the money and the asset? Arguably the simplest option would be no.1

Question 34

Which case developed the Lowest Intermediate Balance Rule?

Answer 34

Roscoe v Winder [1915]

Question 35

What is the the Lowest Intermediate Balance Rule?

Answer 35

Where a wrongdoer has mixed funds - Once funds have been drawn out of an account any subsequent payments into it cannot be treated as trust property unless the trustee shows a clear intention that it is e.g. borrowing trust money for a period with intention to pay it back as soon as he gets more money. Claimant cannot claim charge over these monies. In this case - the maximum which the vendor was entitled to trace was £25, representing the lowest sum to which the balance on the account had fallen between the payment of the £455 into the account and the purchaser’s death, on the ground that at that date of the lowest balance the purchaser must have denuded the account of all the trust moneys except to the extent of £25. UNLESS subsequent payments in had been specifically intended to replenish the trust funds - then the trust would be entitled to a charge over them also remember the personal claim remains intact on the extra money in the account

Question 36

Case which originated the use of pari passu allocation as a basic rule for bringing a claim against an innocent volunteer who has mixed funds

Answer 36

Sinclair v Brougham [1914]

Question 37

what is pari passu allocation?

Answer 37

A remedy for a group of innocent volunteers Pari passu allocation works by identifying the proportion of which each individual contribution has made to the total value of the valid claims, and then distributing the available assets in the same proportions. That is a proportionate constructive trust. This is particularly useful for assets which cant be individually allocated e.g. retirement funds

Question 38

What's the special rule for an active bank account when it is an innocent volunteer?

Answer 38

Clayton's Case (1861) FIFO- first in, first out Mixing an active bank account (e.g. current account). presumes that money paid out of a current account in the same order in which it has been paid in i.e. first in, first out.

Question 39

what does the constructive trust entitle the beneficiaries to?

Answer 39

The constructive trust entitles the beneficiaries to a proportionate share of the trust property. If the beneficiary considers that the invested trust money is likely to increase in value after the date of judgement, a constructive trust will allow them to benefit from that appreciation but they will also bear the risk of any depreciation.

Question 40

Authority for the rule that where the innocent volunteer dissipates trust money and does not add value to the property (e.g. paints the house orange) the claimant has no charge.

Answer 40

Re Diplock [1948] - In relation to improvements, the money may not be traceable because, in every sense of the word, it has simply disappeared. - a charge on only part (ie that which was altered or reconstructed by use of the trust money) may produce the result that, when taken in isolation, it will have little or no value. Lord Greene MR in Re Diplock referred to the situation where the improvement made the house more convenient for the owner, but actually lowered its value for a prospective purchaser (for example, by adapting it to suit the requirements of an elderly or infirm relative). This was confirmed in Foskett v McKeown

Question 41

Held that where there is a claim against an innocent volunteer the beneficiaries proprietary interests will be preserved in any asset identifiable in his hands by the rules of tracing

Answer 41

Re Diplock [1948] - The court refused to allow the tracing to attack this endeavour, stating that the trust assets were no longer identifiable. "the Diplock money used in these cases cannot be traced in any true sense; and, further, that even if this were not so, the only remedy available to equity, i.e. a declaration of charge, would not produce an equitable result and is inapplicable accordingly"

Question 42

What are said to be the essential elements for a tracing claim?

Answer 42

Re Diplock [1948] said there was 2 requirements - 1. a fiduciary relationship 2. an equitable interest BUT... Lord Millett doubted whether a fiduciary relationship was even necessary in Foskett v McKeown [2001]

Question 43

If there is always a personal remedy against the trustee, why pursue an equitable remedy?

Answer 43

if the trustee has become bankrupt or disappears NB - don't say there is no personal claim, say it isn't worth pursuing

Question 44

What is an equitable remedy for?

Answer 44

to protect property of the trust fund NOT to punish the trustee

Question 45

What can the claimant do if in the money used in the bank account by a wrongdoer was dissipated by buying a painting and the painting has reduced in value? - Re Oatway but with the asset going down in value

Answer 45

can place an equitable lien over the property to the value of the money taken from the trust (not just the money spent on the painting) to protect any personal claims the claimant may make - if the painting went up in value there will be a proprietary claim

Question 46

Case which discussed the potential for beneficiaries 'cherry-picking' between Re Oatway and Re Hallett's to ensure the most returns for his claim held that the beneficiary might be able to choose which asset to take (bank account money or increasing value of assets) where the contest is only between the beneficiary and the wrongdoer

Answer 46

Shalson v Russo [2003] per Rimer J - Suggests that where creditors are involved, beneficiary must take what is in account. Besides, wrongdoer should not take advantage of uncertainty!

Question 47

Case which held that where the rule in Clayton's Case causes an inequitable result, the rule can be set aside

Answer 47

Barlow Clowes v Vaughan [1992] - where it is contrary to the intention of the parties Stated that the rule in Clayton’s is “capricious, arbitrary and inapposite” because it doesn't produce fairness between innocent beneficiaries - so it is rarely applied

Question 48

Whats the personal claim in equity if there is a breach by fiduciary or a trustee and the property is received by a 'stranger' - this is kind of next topic

Answer 48

recipient liability - claimant has an equitable interest. recipient which has knowledge makes it 'unconscionable' to retain --> BCCI v Akindele - need to return the value of the breach

Question 49

What is favoured to the rule in Clayton's case for active bank accounts?

Answer 49

pari passu - The principle now applied in most cases is that the beneficiaries will share rateably (pari passu) in the money remaining in the account.

Question 50

What are the facts in Barlow Clowes International Ltd v Vaughan [1992]

Answer 50

There was collective investment scheme - investors sent their money which was mixed and invested through a common fund. There was large scale fraud and a misapplication of the funds. The assets included money invested, money awaiting investment, and money diverted to the purchase of other assets, such as a yacht.

Question 51

What is the 'rolling charge' method (also known as the north american method) which has been suggested as a substitute for the pari passu method where it may cause an unfair outcome?

Answer 51

the money is contributed subject to a ‘rolling charge’, so funds are allocated proportionately at each withdrawal or at the final stage regardless of when contributions and withdrawals were made. - this found approval in Shalson v Russo [2003]

Question 52

Authority for the rule that it is not possible to trace into an unsecured debt

Answer 52

Re Diplock | - unsecured debt is a loan that is not backed by an underlying asset.

Question 53

Authority for the rule that it is not possible to trace into an overdrawn account

Answer 53

Bishopsgate Investment Management Ltd v Homan [1995] per Legatt LJ

Question 54

What was Legatt LJ's opinion in Bishopsgate Investment Management Ltd v Homan [1995]?

Answer 54

Rejected the principle of tracing into an overdrawn account. HELD - that although subsequent payments were made into the account, these were not to be treated as making good the breaches of trust in the absence of clear evidence of intention to remedy the wrongful withdrawal of the pension funds. Trust money paid into an overdrawn account ‘thereupon ceased to exist’.

Question 55

What was Dillon LJ's opinion in Bishopsgate Investment Management Ltd v Homan [1995]?

Answer 55

Said it was arguable whether the facts could allow an inference that there was an intention by the trustee to repay the overdraft with trust money. - - This would allow tracing if the property had been acquired with borrowed money (i.e. by loan or overdraft) provided that, when the borrowing was incurred, the intention was that it should be repaid with the trust money. - In these circumstances, the tracing claimant would be given a charge over the property acquired if there was a sufficient link between the breach of trust and the property acquired.

Question 56

Is it possible to trace into a secured debt?

Answer 56

MAYBE - In Re Diplock, the CoA refused to treat the case as one where subrogation would have been appropriate so that the tracing claimant could have been subrogated to the rights of the creditor BUT... in Boscawen v Bajwa - Millett LJ is in favour of subrogation to trace into a secured debt - “if the plaintiff's money has been used to discharge a mortgage on the defendant's land, then the court may achieve a similar result by treating the land as subject to a charge by way of subrogation in favour of the" claimant

Question 57

What are the main remedies in tracing?

Answer 57

Aside from the loss of the right to trace, remedies in relation to tracing claims will typically include- - the establishment of a resulting trust; - the establishment of a constructive trust; - the establishment of an equitable charge; and - subrogation.

Question 58

Case which includes opinions both for and against backwards tracing into an asset acquired in exchange for incurring a debt from Dillon LJ and Leggatt LJ

Answer 58

Bishopsgate Investment Management Ltd v Homan [1995] - Dillon LJ - FOR - provided that the connection between the misappropriation and the asset was sufficiently proved. - Leggatt LJ - AGAINST - there cannot be an equitable remedy against an asset acquired before the misappropriation in question takes place

Question 59

Case which includes opinions both for and against backwards tracing into an asset acquired in exchange for incurring a debt from Scott V-C and Hobhouse LJ

Answer 59

Foskett v McKeown [1997] - Scott V-C FOR - Hobhouse LJ - AGAINST

Question 60

3 main cases on the potential use of backwards tracing

Answer 60

1. Bishopsgate Investment Management Ltd v Homan [1995] 2. Foskett v McKeown [1997] 3. Brazil v Durant International Corp [2015] UKPC

Question 61

Landmark case which appears to hold that fraudulent payments may be recovered through backwards tracing, as long as the courts are satisfied that the transactions are part of a coordinated scheme

Answer 61

Brazil v Durant International Corp [2015] - UKPC HOWEVER, we eagerly await clarity as to how far the equitable principles of backwards tracing will be pushed in reality and what the words ‘coordinated scheme’ actually mean in practice.

Question 62

TWO benefits of the decision by the Privy Council in Brazil v Durant International Corp [2015]

Answer 62

1. The availability of backwards tracing as a method of asset recovery, depending on the facts of the case, will expand victims’ routes to recovering misappropriated assets and improve the likelihood of fraudsters being brought to justice. 2. the recommendation that the specific facts of each case should determine the availability of backwards tracing is likely to provide the courts with increased flexibility --> this is good for such a fast paced industry

Question 63

TWO negatives of the decision by the Privy Council in Brazil v Durant International Corp [2015]

Answer 63

1. The availability of backwards tracing being fact-specific means it is likely that the outcomes of future tracing cases will be difficult to predict. 2. Disadvantage to general creditors - it expands the possible circumstances in which a claimant will be able to assert priority by means of a proprietary claim if the defendant is insolvent

Question 64

Case which held it is not possible to trace into property owned by an innocent volunteer that has spent the money on maintenance or improvement of the property if it has not increased in value

Answer 64

Re Diplock | - Where the innocent volunteer dissipates trust money and does not add value to the property claimant has no charge

Question 65

Case which held it may be possible to trace into property owned by an innocent volunteer if the property has increased in value from expenditure on maintenance or improvement of property

Answer 65

Foskett v McKeown [2000] per Scott V-C, Hobhouse LJ, Lord Browne-Wilkinson

Question 66

Case which held it is possible to trace into property owned by a wrongdoer if it has increased in value due to expenditure on maintenance or improvement of the property

Answer 66

Foskett v McKeown [2000] BUT... the position where it has not increased in value is not entirely clear.

Question 67

Case which reaffirmed the judgment in Re Diplock [1948] that fiduciary relationship is a prerequisite to tracing in equity.

Answer 67

Westdeutsche Landesbank Girozentrale v Islington BC [1996] - About the rights of depositors who had invested their money with the bank when the building society had become insolvent.

Question 68

Why has the requirement for an initial fiduciary relationship been criticised for being artificial?

Answer 68

Some argue it is the courts being willing to find or discover a fiduciary relationship whenever they feel that tracing is justified

Question 69

What are the 3 basic principles for proprietary remedies?

Answer 69

* A wrongdoer should not profit from his wrongdoing. * A wrongdoer should suffer any loss before the claimant. * Innocent parties should be treated equally.

Question 70

What is an equitable lien?

Answer 70

It is a remedy which can be imposed over the defendant’s property as security for the return of money. - operates as a court-imposed mortgage, entitling the claimant to apply for sale of the property if their claim is not satisfied.

Question 71

What proprietary remedies are available in tracing to restore specific property?

Answer 71

resulting and constructive trusts - entitles the plaintiff (claimant) to a share (and possibly all) of the property over which the trust has been imposed

Question 72

What remedy would be available in the event that the original property or its proceeds of sale remains intact?

Answer 72

Ownership under a constructive trust

Question 73

What remedy would be available in the event that the plaintiff has a claim to money in a bank account?

Answer 73

Lien for the amount of personal claim against wrongdoer and proportionate constructive trust with innocent volunteer.

Question 74

What remedy would be available in the event that the asset is purchased with claimant's money only?

Answer 74

Choice of ownership under a constructive trust or a lien to secure personal claim.

Question 75

What remedy would be available in the event that the asset is partly purchased with claimant’s money and partly with another?

Answer 75

The primary proprietary remedy is proportionate ownership under a constructive trust with option against wrongdoer of a lien to secure personal claim.

Question 76

What is a criticism of a claimant using a proportionate share under a constructive trust as a remedy when the claimants money has been mixed with a wrongdoer’s and the asset has increased in value ?

Answer 76

As much as the claimant is entitled to a proportion of the increase in value as well as return of the value belonging to the claimant, the wrongdoer is also entitled to a proportion of the increase in value - this goes against the basic principle for proprietary remedies that a wrongdoer should not profit from his wrongdoing - inconsistent with Boardman v Phipps

Question 77

Which academic criticised a claimant using a proportionate share under a constructive trust as a remedy when the claimants money has been mixed with a wrongdoer’s and the asset has increased in value?

Answer 77

David Heighton says the issue occurs where the asset which was bought partly with claimant's money and partly with the wrongdoer's money could not have been bought without the claimant's money. Example - purchase of shares – where shares in question can only be bought in blocks worth/costing £100,000, what if the block of shares was bought using 90,000 trust money and 10,000 of the trustees money - Under current law – beneficiaries under the trust would claim proportionate ownership of the shares under a constructive trust and so would get 9/10s of an increase in value but a trustee would get 1/10th increase in value Heighton argues that the beneficiary should be able to claim complete ownership of the shares subject to an obligation to repay to the trustee the money the trustee personally put into the purchase

Question 78

Case which held that when a claimant's money is used to alter, improve or maintain another’s property the only proprietary remedy available is the imposition of a lien (which means a claimant has a right to demand sale of the asset)

Answer 78

Foskett v McKeown per Hobhouse LJ, Lords Hope and Browne-Wilkinson

Question 79

What is one benefit of the approach to proprietary remedies when a claimant's money is used to alter, improve or maintain another’s property in Foskett v McKeown?

Answer 79

Means that the claimant does share in future increase in value of the property

Question 80

What are the criticisms of the approach to proprietary remedies when a claimant's money is used to alter, improve or maintain another’s property in Foskett v McKeown?

Answer 80

FOR AN INNOCENT VOLUNTEER - - A lien is a security interest – if it isn’t paid then the claimant can insist on the property being sold which seems unfair against an innocent volunteer - An interest under a constructive trust would be fairer to an innocent volunteer because the claimant can’t insist on the property being sold, can only apply to the court for an order of sale under s.14 TOLATA for land and the court has discretion so the court can create and postpone the sale giving time to pay - If a lien is the only remedy (which means a claimant has a right to demand sale of the asset) if that’s seen as unfair then the only way to avoid it is to say tracing isn’t possible in the first place. FOR A WRONGDOER - - The lien doesn’t allow for the claimant to get a proportion of any FURTHER increase in value - if the claimant’s money is used to improve the property which increases in value and then over the years the property increases further in value – you can surely argue that a proportion of any further increase in value is because of the expenditure.

Question 81

Authority for the use of charge by subrogation being the remedy for when a claimant's money is used to pay off a secured loan

Answer 81

Boscawan v Bajwa “if the plaintiff's money has been used to discharge a mortgage on the defendant's land, then the court may achieve a similar result by treating the land as subject to a charge by way of subrogation in favour of the plaintiff.”

Question 82

THREE limitations to equitable recovery

Answer 82

1. a proprietary claim cannot be brought against a good faith purchaser for value without notice; 2. proprietary claims can only be made to identifiable property; and 3. if the plaintiff’s property has dissipated, the plaintiff will only be entitled to personal relief.

Question 83

What is the only defence for equitable recovery?

Answer 83

Bona fide purchaser for value of a legal estate without notice - actual or constructive notice. inquiries necessary for constructive notice depends on the type of property you're dealing with.

Question 84

Case which highlights to lack of clarity in what is expected to qualify for constructive notice for the defence of a bona fide purchaser for value of a legal estate without notice

Answer 84

Lord Clarke in Crédit Agricole Corporation and Investment Bank v Papadimitriou [2015] (PC) relying on Lord Neuberger MR in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2012] ALSO - provides assurance that equitable tracing is possible through complex inter-bank transactions and through the international bank clearing system.