Tracing Flashcards
(40 cards)
What is tracing?
Tracing is a legal process, not a remedy, by which a claimant demonstrates what has happened to his/her property, identifies its proceeds and those persons who have handled or received them, and asks the court to award a proprietary remedy in respect of the property, or an asset substituted for the original property or its proceeds.
Tracing allows transmission of legal claims from the original assets to either the proceeds of sale of the assets or new substituted assets.
What are the advantages of a proprietary remedy?
- Claim to specific property
- Priority over general creditors on the insolvency of D
- Increase in the value of the property and any further profits made with it
- Limitation periods
Following or tracing?
“Tracing is … neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property. … The successful completion of a tracing exercise may be preliminary to a personal claim … or a proprietary one, to the enforcement of a legal right … or an equitable one.”
Equitable tracing rules
Tracing rules establishing equitable prop interest are integral part of property law. This does not depend on whether it is fair, just, reasonable to give Ps an interest but about hard-nosed proprietary rights
- Innocent volunteer
- Claim against wrongdoer
Innocent volunteer
Boscawen v Bajwa: Only innocent if can show you neither knew/ had reason to suspect that the money or property were not your own
(V wide definition of wrongdoer)
Foskett v Mckeown
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
Assets bought PARTLY with Cs money
C entitled to a proportionate share of the asset
Dissipation
Eg all of property (wine) has been drunk, no proprietary claim possible. Must resort to suing trustee personally (breach of trust)
MIXED FUNDS
Claim against wrongdoer
Claim against innocent volunteer
A) Claim against wrongdoer
Re Hallett’s estate
- Money withdrawn had been dissipated but sufficient money remained in the account
- beneficiary was held to be entitled to claim it on the grounds the trustee was deemed to have acted rightfully and preserved the trust fund and not to have used it for unauthorised purposes
Re Oatway
- No money remained in the account
- 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:
Roscoe v Winder
Claim to moneys in account limited to lowest intermediate balance.
B) Claim against innocent volunteer
eg: Tim gives £4,000 to his son, Simon, on his 21st birthday. Simon, who knows nothing of Tim’s breach of trust, pays the £4,000 into his account at the Dunkirk Bank in which he already had £1,000. He then withdraws £2,000 which he uses to purchase shares in Abco Plc.
Sinclair v Brougham
Basic rule of innocent volunteer claim is PARI PASSU
Pari Passu rule
meanng “equal footing” that describes situations where two or more assets, securities, creditors or obligations are equally managed without any display of preference
Clayton’s rule
FIRST IN, FIRST OUT (special rule for banking accounts)
- Not been applies in some cases like
a) contrary to intention of parties (Barlow Clowest)
b) application would be impractical/ too onerous (Commerzbank)
Barlow Clowes
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.
Held: Not to apply claytons rule here as would be contrary to intentions of parties
Shalson v Russo
- Trustee misappropriated fund from trust A and B and pays money into account.
- Draws funds from account and uses it to buy a car.
- Misappropriates money from trust C aand pays it into account.
- -> How much money came from each Trust (ABC). Trust shares in those proportions in car and money remaining in account..
So PP rule would be unfair to later contributor to fund (c).
Is intention ever relevant?
Re Diplock:
- if an innocent volunteer deliberately withdraws trust money to put into separate account, then the other rules do not apply.
D can show trust money is in separate account and money in mixed acct is his own.
What are the problems with allowing intention to be relevant?
- Practicality
- On the whole, intention irrelevant to tracing rules
except backwards tracing
DEBTS
Unsecured debt: impossible to trace (same as overdraft)
Secured debt: Position is less clear when cs money used to pay off secured debt. Still property in existence, over which there is security.
BACKWARDS TRACING
Although generally possible to trace into debt, should be possible to trace backwards into any asset acquired for that debt.
L Smith
Proponent of BT
Arguments for/against BT
Against BT: would allow tracing into an asset that D had already acquired before receiving Cs money so logically, he did not acquire asset with Cs money- he already owned it. (Leggett in Bishopsgate, Hobhouse in Foskett)
In favour of BT: ultimately if you look overall, asset was bought with Cs money and the precise order of events of payments should not restrict the courts decision. (Dylan in Bishopsgate, Scott in Foskett)
