Tracing
Introduction:
1. Tracing
a. If money stolen then bought shares with it, then B can trace
b. Process of identifying a new asset as the substitute for the old one Foskett v
McKeown, Millett J
c. Value in substitute property
d. Realm of evidence Lord Steyn
e. Rationale:
i. When T is insolvent, so a personal claim is limited in value
ii. Where a profit has been made using trust funds (i.e. proprietary claim
is more valuable than personal claim)
f. Nature:
i. Mechanism for C to demonstrate what has happened to the property
ii. Neither a claim, nor a remedy
iii. Justification for proceeds representing C’s property
g. There must be a fiduciary relationship to trace in equity Westdeutsche
Landesbank Girozentrale v Islington LBC
h. 3 stages Yugraneft, Christopher Clarke J:
i. Identify property (proprietary base) which has been unlawfully taken
from him
ii. Used to acquire new identifiable property, then another asset (i.e. a
‘series of transactional links’)
iii. Chain of substitutes must be unbroken
2. Following
a. If shares stolen and sold to someone else, then B can follow
b. Process of following the same asset as it moves from hand to hand Foskett,
Millett J
c. Physically location property
3. Tracing or following
a. cannot recover twice
4. Innocent party:
a. Neither knows nor has reason to suspect the money/property is not his own
(i.e. in a trust fund) Boscawen v Bajwa
5. If a wrongdoer has used trust property to acquire an asset and then gives that asset
away the donee cannot get a better title than the wrongdoer so the stricter rules
apply Foskett
6. Direct Substitutes:
a. It is possible to trace value through unlimited changes of form provided it is
kept separate
7. Assets bought partly with C’s money:
a. C entitled to a proportionate share of the assets
b. e.g. paid some premiums on a life insurance Foskett
8. Dissipation:
a. Dissipation = there is no asset to attach a property right to
b. Proprietary claim not possible Re Diplock
1
, c. Rationale: no asset that represents the original property
d. Examples:
i. Wrongfully transferred to charities who discharged debts Re Diplock
ii. Overdrawn bank account used to reduce amount of overdraft Re
Tilley’s
1. Could consider whether the account has a positive balance,
e.g. misappropriates £10,000 and uses the overdraft facility to
buy a watch for £9,000 beforehand; has a positive balance of
£1,000
iii. Exception: discharging a secured debt meant B was entitled to
subrogation Boscawen v Bajwa
Mixed Funds:
Shalson: cherry-pick if account or assets (but not referenced in Turner) – but not clear if
you can pick if not enough money but assets or whether if there are multiple assets,
whether you can take a multiple share in each asset
NB: no scenario where there is some money left in the bank account but also some assets
which can be traced into
1. Rationale:
a. Sinclair: part of the defence to a tracing claim was that the money claimed
had become irretrievably mixed with D’s own funds
b. Lord Neuberger MR dismissed this bluntly:
i. ‘I do not see why… a proprietary claim should be lost simply because
the defaulting fiduciary, while still holding much of the money, has
acted particularly dishonestly or cunningly by creating a maelstrom.
Where he has mixed the funds held on trust with his own funds, the
onus should be on the fiduciary to establish that part, and what part,
of the mixed fund is his property’
2. Claim against a wrongdoer
a. Money withdrawn dissipated + Sufficient money remaining in account = B
entitled to claim it + T acted rightfully and preserved the trust fund/not used
it for unauthorised purposes Re Hallett’s Estate (if enough money, take the
money; T is deemed to use his/her own money first)
i. This is the general rule Turner v Jacob (money withdrawn used to buy
property but sufficient in the account) (if enough money and assets,
still take the money)
b. Money withdrawn dissipated + No money remaining in account = B entitled
to claim shares bought with first withdrawn money + T owes any monies not
recoverable/not free to use as pleases till trust fund restored Re Oatway (no
money, take assets instead; presumption that any dissipated money is T’s
and any purchased assets is B’s)
i. ‘whatever alteration of form any property may undergo, the true
owner is entitled to seize it in its new shape if he can prove the
identity of the original material’ Re Oatway, Joyce J
2
Introduction:
1. Tracing
a. If money stolen then bought shares with it, then B can trace
b. Process of identifying a new asset as the substitute for the old one Foskett v
McKeown, Millett J
c. Value in substitute property
d. Realm of evidence Lord Steyn
e. Rationale:
i. When T is insolvent, so a personal claim is limited in value
ii. Where a profit has been made using trust funds (i.e. proprietary claim
is more valuable than personal claim)
f. Nature:
i. Mechanism for C to demonstrate what has happened to the property
ii. Neither a claim, nor a remedy
iii. Justification for proceeds representing C’s property
g. There must be a fiduciary relationship to trace in equity Westdeutsche
Landesbank Girozentrale v Islington LBC
h. 3 stages Yugraneft, Christopher Clarke J:
i. Identify property (proprietary base) which has been unlawfully taken
from him
ii. Used to acquire new identifiable property, then another asset (i.e. a
‘series of transactional links’)
iii. Chain of substitutes must be unbroken
2. Following
a. If shares stolen and sold to someone else, then B can follow
b. Process of following the same asset as it moves from hand to hand Foskett,
Millett J
c. Physically location property
3. Tracing or following
a. cannot recover twice
4. Innocent party:
a. Neither knows nor has reason to suspect the money/property is not his own
(i.e. in a trust fund) Boscawen v Bajwa
5. If a wrongdoer has used trust property to acquire an asset and then gives that asset
away the donee cannot get a better title than the wrongdoer so the stricter rules
apply Foskett
6. Direct Substitutes:
a. It is possible to trace value through unlimited changes of form provided it is
kept separate
7. Assets bought partly with C’s money:
a. C entitled to a proportionate share of the assets
b. e.g. paid some premiums on a life insurance Foskett
8. Dissipation:
a. Dissipation = there is no asset to attach a property right to
b. Proprietary claim not possible Re Diplock
1
, c. Rationale: no asset that represents the original property
d. Examples:
i. Wrongfully transferred to charities who discharged debts Re Diplock
ii. Overdrawn bank account used to reduce amount of overdraft Re
Tilley’s
1. Could consider whether the account has a positive balance,
e.g. misappropriates £10,000 and uses the overdraft facility to
buy a watch for £9,000 beforehand; has a positive balance of
£1,000
iii. Exception: discharging a secured debt meant B was entitled to
subrogation Boscawen v Bajwa
Mixed Funds:
Shalson: cherry-pick if account or assets (but not referenced in Turner) – but not clear if
you can pick if not enough money but assets or whether if there are multiple assets,
whether you can take a multiple share in each asset
NB: no scenario where there is some money left in the bank account but also some assets
which can be traced into
1. Rationale:
a. Sinclair: part of the defence to a tracing claim was that the money claimed
had become irretrievably mixed with D’s own funds
b. Lord Neuberger MR dismissed this bluntly:
i. ‘I do not see why… a proprietary claim should be lost simply because
the defaulting fiduciary, while still holding much of the money, has
acted particularly dishonestly or cunningly by creating a maelstrom.
Where he has mixed the funds held on trust with his own funds, the
onus should be on the fiduciary to establish that part, and what part,
of the mixed fund is his property’
2. Claim against a wrongdoer
a. Money withdrawn dissipated + Sufficient money remaining in account = B
entitled to claim it + T acted rightfully and preserved the trust fund/not used
it for unauthorised purposes Re Hallett’s Estate (if enough money, take the
money; T is deemed to use his/her own money first)
i. This is the general rule Turner v Jacob (money withdrawn used to buy
property but sufficient in the account) (if enough money and assets,
still take the money)
b. Money withdrawn dissipated + No money remaining in account = B entitled
to claim shares bought with first withdrawn money + T owes any monies not
recoverable/not free to use as pleases till trust fund restored Re Oatway (no
money, take assets instead; presumption that any dissipated money is T’s
and any purchased assets is B’s)
i. ‘whatever alteration of form any property may undergo, the true
owner is entitled to seize it in its new shape if he can prove the
identity of the original material’ Re Oatway, Joyce J
2
