Tracing

							Tracing
Breach of Trust
Personal claims – trustees liable but no good if the trustee has no money.
Proprietary claims – beneficiaries have a claim against the trust property.

If the trust money is not mixed, or it is used to purchase identifiable property, then beneficiaries can
claim the money or property against the trust money.

Tracing is a process, not a claim.

Tracing in Common Law
Claims requires legal title. Beneficiaries cannot claim.

Proprietary claims require trust property or converted trust property to be identifiable. Unless claimant
can identify the actual coins and notes, he must use an action for money had and received.

Action for money had and received
Personal claim – liable even if no longer has money
There is no requirement for knowledge but the recipient must have been unjustly enriched (no
consideration for enrichment)

Taylor v Plumer – money used to buy bullion. Recoverable.
Banque Belge v Hambrock – Money moved though a number of accounts but was identifiable at all
times and not mixed with any other money. Recoverable.
Agip v Jackson - Mixing by the defendant will not defeat an action for money. ???

Change in position defence
A claim may be defeated if the position has changed so that repayment will cause injustice /
inequitable. Lord Goff – e.g. payment of monies to charity may defeat a claim. Just spending the
money probably will not.

Claims not defeated by Equity’s darling.

Lipkin v Gorman - Trustee gambled away trust finds. Amount recovered was reduced by winnings.

Tracing in Equity
Re Diplock – Claims requires equitable interest and fiduciary relationship.
Claim may be defeated if:
        (1) (Equity’s darling) bona fide purchase without notice for value. Lipkin v Gorman.
        (2) funds are dissipated (e.g. around the world cruise, dinner)
        (3) inequitable to do so (property improvements – money spent on improvements not
            reflected in price, recovery requires sale – disproportionate) Re Diplock
        (4) change in position (?) - common Law defence in Lipkin v Gorman. Unclear if available
            in Equity.
        (5) Payment of debts (Re Diplock) – hard to understand.

Re Hallett - Fiduciary relationship exists between solicitor and client, principal and agent, bailor and
bailee
Re Goldcorp Exchange – No fiduciary relationship existed in normal business relationships.
Westdeutsche LandesBank v Islington LBC – Money paid by mistake. Knowledge + possession of
money creates constructive trust, and therefore fiduciary duty.

Unmixed Funds
Personal and proprietary claims possible.
If property has increased in value, then proprietary claim may be best (if not equity’s darling)
If property has decreased in value, then personal claim may be best (if the defendant still has the
money)

Mixed Funds –Proprietary Claims
Re Hallet Estate – Claimant has right to charge of defendant’s property to recover.
Re Tilley’s WT – Ungoed-Thomas J- orbiter - Claimant has right to claim proportion of property
corresponding to his contribution. Not to do so would undermine duty not to make a profit contrary to
Keech v Sandford

Foskett v McKeown – HL approved Re Tilley.

Subrogation available since Boscawen v Bajwa.

Claims against Trustees
Re Hallet – Presumption that the trustee spends his own money first. (Presumption of honesty)
Re Oatway – If property purchased and then trust funds dissipated, the beneficiaries can claim against
property.

Roscoe v Winder – Lowest intermediate balance - if payments are made the defendants account, the
maximum proprietary claim against the defendant is the balance before the payments – unless the
trustee shows an intention to treat the new funds as repayments to the trust.

Claims between 2 trusts
Trusts share the funds rateable (Re Diplock, Foskett v McKeown) BUT subject to Clayton’s Case.
Only works if money put into account together.

Claims between a trust and innocent party
Parties share the funds rateable (Re Diplock, Foskett v McKeown). However an innocent party may
be required to make good any shortfall.

Money spent on the property of another
Foskeet v McKeown – property subject “at most to proprietary lien”, but only if not unfair.

Clayton’s Case
Applies to running (current) accounts (a) between 2 trusts, (b) trust and innocent party.
Does not apply if trustee mixes trust funds with his own.
FIFO.
Rule sux. Barlow Clowes v Vaughan (CA) – Clayton’s Case should not apply if
    (1) contrary to intentions of claimants,
    (2) impractical, or
    (3) unjust
Russel-Cooke v Prentis (Ch) – Clayton’s Case can ‘be displaced even by a slight counterweight’ but
good law until overruled.

Claims against transferees
No claim against Equity’s darling
Property can be traced into the hands of an innocent volunteer.
A transferee with notice becomes a constructive trustee and open to proprietary claims and personal
claims for “knowing receipt”.

Personal Claims in Equity
Beneficiaries should use personal representatives first. (Re Diplock)
Action available for mistakes in law (Klienwort Benson v Lincoln CC)
Principal sum recoverable but not interest. (Re Diplock)
Re Diplock rules re personal claims applies only to estates (?)
Re Diplock suggest no defence to personal claim – possibly leads to injustice – but following Lipkin,
change in position defence may be available – undecided.