Tracing

Question 1

Tracing is neither a right nor a remedy but a process by which property rights can be identified in the hands of the recipients

Answer 1

Boscawen v Bajwa

Question 2

Remedies at common law

Answer 2

Proprietary right of restoration - only for land historically
Personal remedy of restitution - personal claim against the recipient for the value of the property he has received

Question 3

Remedies in equity

Answer 3

Proprietary remedies:

• equitable ownership
• equitable charge or lien - claimant can recover value of his money that went into the property
• subrogation

Personal remedy against the recipient of the property

Question 4

Advantages of a proprietary remedy

Answer 4

• priority over general creditors on insolvency
• benefit from any increases in value
• no statutory limitation period

Question 5

Tracing at common law

Answer 5

Claimant must have legal title; property must be identifiable; generally only a personal claim

Question 6

Defence of change of position - expenditure in reliance of the payment he had received; expenditure was extraordinary

Answer 6

Lipkin Gorman v Karpnale - defence not available if acting in bad faith

Question 7

Defendant who changed his position in reliance on an anticipated receipt may rely on defence of change of position

Answer 7

Dextra Bank v Bank of Jamaica

Question 8

Payment of debts cannot normally constitute extraordinary expenditure

Answer 8

Scottish Equitable v Derby

Question 9

Even though assets were of everyday nature, the amount he had acquired and expense was extraordinary

Answer 9

Philip Collins v Davis

Question 10

Tracing at equity requirements

Answer 10

Re Diplock:

• fiduciary relationship
• equitable proprietary interest in property

Question 11

Fiduciary relationship may be between claimant and person who transferred property to defendant

Answer 11

Re Diplock

Question 12

Solicitor and client

Answer 12

Re Hallett’s Estate

Question 13

Fiduciary relationship easily found

Answer 13

Black v Freedman - thief

Question 14

Property can be traced into the hands of:

Answer 14

• person who misapplied it
• person who received it with knowledge
• innocent volunteer

NOT a bona fide purchaser for value without notice

Question 15

Money paid into overdrawn bank account cannot be traced

Answer 15

Bishopsgate v Homan

Question 16

Money used to pay off unsecured debts cannot be traced

Answer 16

Re Diplock

Question 17

If wrongdoer has used trust funds to purchase other property, the claimant has a choice of remedies

Answer 17

Re Hallett’s Estate: claimant can take property or have a charge over the property for the amount of money expended

Question 18

Where trust money has been mixed with other funds, beneficiaries have right to a proportionate share of the property acquired or an equitable charge

Answer 18

Foskett v McKeown

Question 19

Claimant’s property used to improve an innocent volunteer’s pre-owned asset and no value added

Answer 19

Re Diplock - money is dissipated and cannot be traced

Question 20

Claimant’s property used to improve an innocent volunteer’s pre-owned asset and value is added to asset

Answer 20

Trust would not be entitled to proportion of the value of the asset, but ‘at most a proprietary lien’ over the asset - obiter in Foskett v McKeown

Question 21

Subrogation - secured debt paid of with misappropriated assets, subrogation allows debt to be revived in favour of the party whose money was used to pay off the original debt

Answer 21

Boscawen v Bajwa

Question 22

Where claimant’s money is paid into the wrongdoer’s bank account and mixed with the wrongdoer’s money, the claimant has an equitable charge on the bank account for the amount paid in

Answer 22

Re Hallett’s Estate

Question 23

Presumption of honesty - dissipated money is that of the trustee who rightfully used his own money

Answer 23

Re Hallett’s Estate

Question 24

Rebuttal of presumption of honesty (total dissipation)

Answer 24

Re Oatway

Question 25

Where property bought using trustee and beneficiary’s money, beneficiary may choose to have an equitable charge or proportionate share of the property

Answer 25

Foskett v McKeown

Question 26

Suggestion that claimant should first trace into any remaining funds, not cherry pick

Answer 26

Turner v Jacob

Question 27

Suggestion that innocent party should be able to trace into what they want as the guilty party shouldn’t gain

Answer 27

Shalson v Russo

Question 28

Lowest Intermediate balance rule - if wrongdoer spends claimant’s money and then pays in money of his own, this is not repayment unless trustee shows such intention

Answer 28

Roscoe v Winder

Question 29

If account is exhausted during the intermediate period, the beneficiaries cannot trace at all

Answer 29

Bishopsgate v Homan

Question 30

Trust property mixed with innocent volunteer: deposit accounts

Answer 30

Two funds share rateably - Re Diplock’s Estate

Question 31

Trust mixed with innocent volunteer: current accounts

Answer 31

First in first out - Re Clayton’s Case, confirmed in Barlow Clowes

Question 32

First in first out not to be applied if:

Answer 32

• contrary to express or implied intentions of the claimants
• it is impractical
• it will cause injustice

(Barlow Clowes)

Question 33

Loss of right to trace and claim in equity

Answer 33

• Inequitable - Re Diplock’s Estate - spent money improving pre-owned property
• bona fide purchaser for value without notice
• property is not identifiable

Question 34

There will be no personal action against an innocent volunteer who dissipated trust property before he was aware it was such

Answer 34

Re Montagu’s Settlement

Question 35

A personal action will only arise against a recipient whose knowledge of the provenance of the property would make it unconscionable for him not to return it

Answer 35

BCCI v Akindele

Question 36

Personal action in Re Diplock

Answer 36

Where money is wrongly paid out in administration of an estate, a personal action is available against those who received money, but unpaid beneficiaries should first sue the personal representative who has acted wrongly