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Give an example of how tracing works?

A trustee misappropriated trust money and uses it to buy a car for himself. Beneficiaries have an equitable interest in the money and that money can be traced to the car. The car is the new asset.


What are the types of tracing?

- common law tracing (C is the legal owner of the property in question)
- equitable tracing (C has a beneficial interest in the property being traced)


When might common law tracing be available?

Where the legal owner of an asset has been deprived of it but only if the asset has been converted into something else (cash into property).


What are the facts of Taylor v Plummer and what type of tracing does it refer to?

Common law tracing. D handed cash to stockbroker to purchase bonds, but he purchased gold bullion and investments and took off with them. D caught him and physically took them back. Stockbroker then went bankrupt and wanted to know if he property should be returned to his estate. D could keep the property as they were traceable products of his money.


What are the limitations to common law tracing?

- only available to the legal owner (not equitable)
- not available when the property being traced has mixed with other property (money mixed wi other money in a bank account) as it then ceases to be identifiable


What are the facts of Agip (Africa)?

Money belonging to the C was transferred to another account through an interbank clearing system. Once in the clearing system it mixed with other money and ceased to be identifiable.


What are the requirements in order to use equitable tracing?

- an initial fiduciary relationship between the C and the person who first held the legal title to the asset being traced AND
- the C must have an equitable proprietary interest in the asset


What is the leading case in equitable tracing and what are the facts of it?

Re Diplocks Estate. Executors of the estate mistakenly distributed £200k amongst various charities in reliance on an invalid clause in the will. C were the next of kin who were actually entitled to the money and brought a claim against the charities. The initial fiduciary relationship was between the beneficiaries under the will and the executors of it. It does not matter that there was no fiduciary relationship between the C and the charities. Equitable interest is self evident as the C were entitled to the money as beneficiaries under the will.


In which of the following situations would common law tracing not be available. All that apply.
A) where the asset has changed form (money to shares)
B) where the C was the holder of the legal title to the property being traced
C) where the C was the beneficial owner only of the property being traced
D) where money has been taken from the C and subsequently mixed in a bank account
E) where the property has been passed on to a third party

C and D


What are the prerequisites for equitable tracing? All that apply.
A) an initial fiduciary relationship
B) D must have held the property initially as a trustee or executor
C) the property must not have been mixed with any other identical property (money in bank account)
D) C must have initially held the legal title to the property being traced
E) C must have an equitable proprietary interest in the property being traced

A and E.


When do the rules vary in equitable tracing?

When the claim is against:
- an unmixed fund or asset
- a mixed fund outside a bank account
- a mixed fund within a bank account


What is the position where funds are unmixed?

If the property is still in its original form then it may be traced and identified even though it has passed into the hands of a third party unless it has been sold to a genuine (bona fide) purchaser for value.


What is the position if the property has changed form (cash to an asset)?

It is possible to trace the new asset from the original cash. If an asset has been purchased with trust money, the C may take the property purchased or take a charge over it for the amount of trust money used to buy it (Re Hallet).


What is meant by taking a charge over an asset purchased?

They become a secured creditor in relation to the asset so if the D is made bankrupt they can obtain their money from the asset in priority to other creditors.


What is the rule for where funds are mixed outside of a bank account?

The C can trace into the mixed funds or asset and take a charge over either the fund or asset for the amount of trust money used (Re Hallet).


What came from the case of Foskett v McKeown with regards to funds mixed outside of a bank account?

The C can elect to take a proportionate share of an asset rather than having a charge over it to the value of their money used. Advantageous where an asset increases in value.


What are the facts of Foskett v McKeown?

Life insurance policy was purchased using the fiduciaries own money as well as money belonging to the C. Fiduciary died and the policy paid out £1m. C could trace into the money in the proportion to the amount he initially contributed.


What is the rule if money or assets of two or more trusts have been mixed or trust money has been mixed with innocent third party money?

Innocent contributors are treated equally and share any proceeds rateably (Fosset; Re Diplock).


Where funds are unmixed which of the following statements is correct?
A) the property may be traced into the hands of any type of third party
B) if the property has changed form (chattel into money then tracing will not be possible)
C) the C may take a charge over the asset taken even if it has changed form



In relation to property that has been mixed outside a bank account, which is correct? All that apply.
A) C cannot trace their property if it has been mixed outside a bank account
B) C can take a charge over the mixed fund to the value of the amount they are owed
C) C can take a charge over the mixed fund but if the fund has increased in value they would not be entitled to the increase on their share
D) if the C money has been mixed with that of another innocent party then the C would be entitled to a proportionate share of the mixed fund

B and D.


What is the definition of tracing?

A process by which the claimant identifies his property in the hands of another. Once located the courts may award a remedy to return the property to the claimant or provide them with compensation.