Tracing And Following

Question 1

Tracing

Answer 1

• where the property is intangible or has materially changed form then tracing is the apt step
• focusses on seeking to recover the ‘value’ of the trust property- shalson v Russo
• can be done under common law or under equity

Question 2

Tracing under common law

Answer 2

• applies where claimant is seeking a legal interest in the property
• doesnt apply where the property has been mixed with other properties
• however because beneficiaries interest is an equitable one, tracing under common law is not applicable

Question 3

Tracing under equity

Answer 3

Unmixed funds
- quite simple and easy to recover

Mixed funds
- follow rules in re halletts estate and re oatway

Question 4

Tracing where property is mixed with trustees own funds

Answer 4

Equity provides 2 alternative presumptions which beneficiaries can pick from depending on which one suits them most

Rule in Re Halletts estate
- where trustees have dissipated the money by spending it on wasteful/non-profitable ventures.
- presumption is that trustee spent their own money first
- beneficiaries will be able to trace their trust funds into the remaining in the account

Rule in Re Oatway
- where trustee withdrew money from the account and invested it in a profitable asset/venture
- presumption is that trustee spent the beneficiaries funds first so the beneficiaries can trace their funds into the investment and claim a proportionate interest in it

Question 5

Mixed funds with innocent parties

Answer 5

Rule will depend on whether its a current or savings account

Savings account
- rule is that the money in the mixed fund will be shared between the beneficiaries and innocent third party on a pari passu basis
- each will get their proportionate share of the account- Sinclair v brougham

Current account
- applicable principle is known as the rule in re Clayton which applies a ‘first in first out’ principle
- i.e. the trust fund first paid into the account is presumed to have been the first funds withdrawn from the account
- rule under criticism by privy council in Barlow clowes international v Vaughan and suggested it should be only used in exceptional cases
- PC proposed a rolling charge principle

Question 6

Backward tracing

Answer 6

• tracing doesnt apply to properties already owned by the trustee prior to misappropriating the trust fund- bishopsgate investment management v howman

Question 7

Limitations on tracing

Answer 7

Dissipation of assets
- where a trust asset has been dissipated without any tangible substitute e.g holidays
- beneficiaries only option is a personal claim against the trustee

Bonafide purchaser for value
- where a third party acquired the trust asset for value and in good faith, tracing is lost
- however the beneficiaries can trace and recover the value received by the trustee

Payment of debt
- where trust fund is used to pay off a debt, tracing is no longer available
- where funds are paid into an overdrawn account, the trust funds are lost as the payment is deemed to be in settlement of the debt
- where a trust fund is used to clear off mortgage or other debts on properties the fund is lost and cannot be traced

Question 8

Following

Answer 8

• process of identifying the movement of the trust property as it changes hands in its original form
• only applies to tangible property- foskett v mckeown
• focused exclusively on the original property
• where its mixed but remained in its original form it will still be entitled to following- spence v union marine insurance co