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Flashcards in Tracing Deck (47):

Defintion of tracing

Foskett v McKeown - The process of identifying a nwe asset as the substitute for the old (As per Lord Millet)


Why is equitable tracing better than common law tracing?

- Priority creditor status
- Common law tracing cannot trace into mixed funds (Agip v Jackson)
- Allows claim of profits
- No limitation period


Preliminaries for equitable tracing

Re Diplock;
- Fiduciary relationship
- Equitable proprietary relationship


Why is a proprietary claim better than a personal claim?

- Profit claimable
- Priority status above other creditors
- A personal claim depends on the person being solvent, whereas a claim against an asset is better as will always be able to recover asset


Banque Belge v Hambrouck

Common law tracing can trace into unmixed funds


Agip v Jackson

Common law tracing is defeated by mixing


When will there not be a proprietary claim?

 Inequity (re Diplock)
 Equity’s Darling
 Dissipation


When will a claim be inequitable?

Re Diplock - Claiming money back from hospital which had been relied on and would involve kicking the patients out of the hospital
Foskett v McKeown - Not inequitable to claim money children as they had not relied on it


Bishopsgate v Homan

Money used to pay off unsecured debts is classed as dissipated


Re Hallet

A charge can be placed over property to recover it. This will obligate recovery and sale however no profit will be recovered
- In unmixed property there is an option to place a charge over the proeprty or claim property back through an equitable propritary claim


Foskett v McKeown

In mixed funds there is an option to;
- Place a charge over the property
- Claim an equitable proprietal claim over the property


What are the different scenarios for an equitable proproietal claim in tracing?

o Unmixed funds
o Mixed funds
 C’s property mixed with trustee’s property in asset
- C’s property mixed with innocent volunteer/another trust fund in an asset
 C’s property mixed with pre-owned asset of innocent volunteer
 C’s property mixed with trustee’s property in bank account
• Possible exception of Re Tilley/Shalson v Russo/Turner v Jacob may apply
• Roscoe v Winder – Lowest intermediate balance rule may apply
 C’s money mixed with another trust/innocent volunteer in a deposit account
 C’s money mixed with another trust/innocent volunteer in a active current account


Claimant's property mixed with another trust fund or innocent volunteer's in an asset

- Re Diplock - They share the property pari passu


C's property mixed with innocent volunteer's in a pre-owned asset;

1. Re; Diplock - If there is no increase in value then the property is deemed dissipated (Millet criticises this as it is also inequitabel to deny claim of money back)
2. Foskett (obiter) as per Lord Browne Wilkinson - Where property increases in value it may be possible to place a charge over the property. However this may encounter issues of inequitability


El Ajou v DLH

Where property is purchased from a mixed bank account (of trustee and claimants money) the claimant may claim a charge or a proprietal claim over the purchased property


Presumption of honesty

- Re Hallet


Rebuttal of presumption of honesty

- Re Oatway


Re Tilley's WT

- Where the trustee spends mixed funds to buy an asset, the claimant may only make an equitable proporietary claim over the property if there is insufficient money in the mixed fudn to reimburse the claimant


Shalson v Russo

This case suggests that where the trustee has mixed the claimants assets with trust property then cherry picking should be allowed as the trustee is at fault in mixing the 2 funds. (commercial)


Turner v Jacob

- Where there are other beneficiaries to the will then cherry picking should not be allowed as this would disadvantage the other beneficiaries
- However this case had unique facts and did not consider the case of Shalson v Russo suggesting it does not disapply cherry picking
- Money reimbursed to best of ability


Armory v Delamirie

o Wrongdoer should not profit from their own wrongdoing, particularly in regards to uncertainty
o If the party is the wrongdoer then the claimant should be allowed to cherry pick


The Law of Trusts and Trustees

Supports a Shalson v Russo interpretation


Roscoe v Winder

- Lowest intermediate balance rule


SInclair v Broughman

- Withdrawals shared rateably in a deposit account


Re Clayton's Case

In an active current account withdrawls are subject to the first in first out rule
- Criticism of re Clayton;
- disapplied in re Barlow clowes as causing injustice. Instead applied park passu
- Russel Cooke v prentis - suggested the rule in re Clayton is more of an exception
- commerzbank impractical and unjust
- rolling charges applied in other jurisdictions but rejected in uk as too difficult to implement


Barlow CLowes v Vaughan

Confirmed Re Clayton is good law in family context


Re Ahmed & Co

FIFO more readily disapplied in commercial contexts


Personal action under Re Diplock

= Where property is misadminstred under a will there is a personal claim for the money;
- Must first sue the trustee
- Recovery is loss - recovered sum
- No entitlement to interest
- COnfirmed in MoH v Simpson


Boscawen v Bajwa

Subrogation allows the party to step into the shoes of the mortgagee
Subrogation permitted where tracing into a secured asset


Defence of change of position

Lipkin Gorman v Karpnale;
- Property recieved in breach and spent in reliance on this receipt of funds, would be inequitable to claim it back
- Good faith (Niru v Mile Stone)
- Disenrichment (doubted in Commerzbank v Gareth)
- Extraordinary expenditure


Dextra Bank v Bank of Jamaica

- Change of position in anticipation of receipt can be grounds for change of position


Scottish Equitable plc v Derby

- Payment of debts is not extraordinary


Phillip Collins v Davis

Expenditure on sex and drugs is disenrichment (as it is dissipation, no asset to trace into) and extraordinaryu as above normal level


Recipient liability

= Where property receieved in knowledge of breach of trust and it is unconscionable to keep it then there will be a personal action for recovery


El Ajou v DLH (prelimanries for a recipient liability claim)

o Is there a disposal of assets in breach of fiduciary duty (has the trustee nicked trust money)
o Traceable receipt by 3rd party (can we connect the breach and the receipt of the property. Did Toby’s stealing of Rachel’s money mean Craig received it)
o Knowledge of the breach


Baden scale of knowledge

- Disapplied as too uncertain
1 – Actual knowledge
2 – Nelsonian blindness
3 – Recklessness to making enquiries
4 – Knowledge of circumstances which would indicate the facts to an hoenst and reasonable man
5 – Knowledge of circumstances which would put an honest and reasonable man on inquiry


BCCI v Akindele

- Tried to introduce a new criteria for dishonest receipt, however the idea of unconscionability essentially boils down to knoweldge
o Knowledge of breach of fiduciary duty will make the retention of the asset unconscionable
o However what is unconscionable is not a well-defined concept and essentially comes down to knowledge again, which as previously stated has an unsatisfactorily unclear definition in Re Baden


Dishonest assitance

Where the party assists in a breach of trust but does not receieve the property


Case progression for dishoenst assistance

RB v Tan
Barlow-Clowes v Eurotrust
Abou-Rahmah v Abachman


RB v Tan

o Require dishonesty + assistance
o ‘The touchstone of liability is dishonesty’
o Dishonesty
 Objective test of dishonesty
 With regard to the defendants experience and attributes



o Suggested test for dishonesty of effectively a Ghosh test;
 Was the behaviour dishonest
 Did the defendant realise it was dishonest


Barlow-CLowes v Eurotrust

o Twinsectra misunderstood so was reinterpreted to remove the subjective element and replace with the original idea of individual attributes
o Dishonesty is deliberately not enquiring


Abou-Rahmah v Abachman

o Affirmed the Barlow Clowes interpretation
o Objective test with regard to individual attributes (effectively RB v Tan)


AG Zambia v Desai

Foolishness or naievity is not dishonesty


Ultraframe v Fielding

Assitance is;
- Planning a breach
- Making a breach easier
- Covering up a breach


Grupo Torras v Al-Sabah

Link need not be between C’s loss and the assistance just between the assistance and the breach of trust when this results in C’s loss


Ultrafame v Fielding (summary)

- Knowledge of helping someone who is up to no good
- Some form of assitance; planning, cover up etc
- Causal link between assitance and breach of trust. Assitance after breach is no causal