TRACING
Everything is presumed against the wrongdoer
4 conditions when tracing in equity
1. existence of a fiduciary relationship - transferred through breach of trust
2. Existence of an equitable proprietary interest — re diplock, boscawen v bawja
3. tracing would not be inequitable — re diplock
4. property must be in a traceable form — means that property must be
ascertainable and this will not be so if for example it has been spent on a
holiday — Bishopgate v Homan
- Tracing will not be permitted into an overdrawn account as clearly the
prop into which it is sought to trace has disappeared
- Benefits:
- Protected against insolvency
- Can take advantage of increased value
- interest can be claimed on contribution — Wallersteiner but only when there
can be full restitution
- Limitations
- Need to show that prop was held in FD,
- Innocent volunteer
- Dissipation means you cannot recover
- Cannot claim from equity’s darling
2 set rules:
1. T mixes own money and trust money
- any money made is assumed to be made by the trust money and any losses from
the trustee’s personal funds
- Honest trustee approach — Re Hallett’s Estate: presumption that T was
spending own money first — can resolve doubts against the wrongdoer —
although everything is usually against the wrongdoer
- Re Oatway — Bs can choose which property they would rather recovery but only
if there is evidential certainty
- Foskett v McKeown — T took money and used it to pay premiums on his own
insurance policy. Policy paid out lump sum to Ts children but part of this was
procured using trust fund money
, - HL said 2/5 premiums were taken from the trust
- Entitled to the proportionate share of profits
- Why not all the profit? If T defaulted then recovery of all profit would
disadvantage other creditors
- Lowest intermediate balance rule — Roscoe v Winder
- Once money had been drawn upon by T that part of the trust money has
deemed to have been spent
- Subsequent payments are not treated as replacing the trust money unless it
is clear that they specifically intended to replenish the fund
- Would have to go after T personally
- Reaffirmed by BIM v Homan — tracing does not extent through an
overdrawn bank account — Lord Millett, ‘you cannot give what you do not
have’
- Cherry Picking per Shalson v Russo — not universally accepted but
essentially means that Bs can pick best assets for their needs
2. Where 2 innocent parties
- Re Diplock said that it ought to be held on a pro rate. Proportionate shares of
total fund
- C’s entitlement ranks equally to the IV
- Money in a current account — First in, First out Rule (Re Claytons)
- Rule should not apply where its application would be either contrary to the
express or implied intention of Cs or impractical or cause injustice — Barlow
Clowes
- There has been a retreat from Clayton’s case in some instances
- Russell-Cooke — would have been arbitrary to apply Clayton
- Takes money from various clients and mixes it, held that because some
investments were good and others bad, would have been unjust to give
good investments in first
- In Canada the Rolling Charge is preferred
- Contributions of each innocent party are calculated after each relevant
- Shalson v Russo said that this method should be used
- Barlow Clowe’s rejected rolling charge method as it is highly complicated
and would need forensics of accounts, so that each investor was held to
share loss proportionately
Everything is presumed against the wrongdoer
4 conditions when tracing in equity
1. existence of a fiduciary relationship - transferred through breach of trust
2. Existence of an equitable proprietary interest — re diplock, boscawen v bawja
3. tracing would not be inequitable — re diplock
4. property must be in a traceable form — means that property must be
ascertainable and this will not be so if for example it has been spent on a
holiday — Bishopgate v Homan
- Tracing will not be permitted into an overdrawn account as clearly the
prop into which it is sought to trace has disappeared
- Benefits:
- Protected against insolvency
- Can take advantage of increased value
- interest can be claimed on contribution — Wallersteiner but only when there
can be full restitution
- Limitations
- Need to show that prop was held in FD,
- Innocent volunteer
- Dissipation means you cannot recover
- Cannot claim from equity’s darling
2 set rules:
1. T mixes own money and trust money
- any money made is assumed to be made by the trust money and any losses from
the trustee’s personal funds
- Honest trustee approach — Re Hallett’s Estate: presumption that T was
spending own money first — can resolve doubts against the wrongdoer —
although everything is usually against the wrongdoer
- Re Oatway — Bs can choose which property they would rather recovery but only
if there is evidential certainty
- Foskett v McKeown — T took money and used it to pay premiums on his own
insurance policy. Policy paid out lump sum to Ts children but part of this was
procured using trust fund money
, - HL said 2/5 premiums were taken from the trust
- Entitled to the proportionate share of profits
- Why not all the profit? If T defaulted then recovery of all profit would
disadvantage other creditors
- Lowest intermediate balance rule — Roscoe v Winder
- Once money had been drawn upon by T that part of the trust money has
deemed to have been spent
- Subsequent payments are not treated as replacing the trust money unless it
is clear that they specifically intended to replenish the fund
- Would have to go after T personally
- Reaffirmed by BIM v Homan — tracing does not extent through an
overdrawn bank account — Lord Millett, ‘you cannot give what you do not
have’
- Cherry Picking per Shalson v Russo — not universally accepted but
essentially means that Bs can pick best assets for their needs
2. Where 2 innocent parties
- Re Diplock said that it ought to be held on a pro rate. Proportionate shares of
total fund
- C’s entitlement ranks equally to the IV
- Money in a current account — First in, First out Rule (Re Claytons)
- Rule should not apply where its application would be either contrary to the
express or implied intention of Cs or impractical or cause injustice — Barlow
Clowes
- There has been a retreat from Clayton’s case in some instances
- Russell-Cooke — would have been arbitrary to apply Clayton
- Takes money from various clients and mixes it, held that because some
investments were good and others bad, would have been unjust to give
good investments in first
- In Canada the Rolling Charge is preferred
- Contributions of each innocent party are calculated after each relevant
- Shalson v Russo said that this method should be used
- Barlow Clowe’s rejected rolling charge method as it is highly complicated
and would need forensics of accounts, so that each investor was held to
share loss proportionately
