Tracing at common law and in equity

Tracing at common law and in equity

1. Proprietary Tracing

   • Advantages
     • returns specific item/ identifiable product regardless of 3rd parties finances
     • court can freeze assets of 3rd party to preserve benefit of true owner
     • Gives true owner priority in insolvency (equity)
     • claimant MAY keep benefit of increase in value/ interest
       • Common law JONES (FC)& SONS V JONES
       • Equity RE TILLEY'S WILLS TRUST
   • Criteria (common law)
     • legal title
       • MCC V LEHMAN BROTHERS
         • Beneficiaries under trust cannot use
     • specifically identifiable property at transactional link (clean substitution required)
       • TAYLOR V PLUMER
     • Must be no defence available
     • Possible to trace into enhanced value of asset
       • JONES(FC) & SONS V JONES
   • Criteria (equity)
     • Fiduciary relationship
       • SINCLAIR V BROUGHAM
       • RE DIPLOCK
     • must have equitable title
       • ALUMINIUM INDUSTRIE VAASEN BV V ROMALPA
     • Must be undissipated property
       • cannot trace into overdrawn accounts or monies used to pay unsecured loans
         • RE GOLDCORP EXCHANGE
         • BISHOPSGATE INVESTMENT V HOMAN
       • RE DIPLOCK
       • eg credit card debt
       • secured loan - trace monies into land which loan was secured on
         • beneficiary in shoes of original lender
           • has charge over land enforceable by sale of property
             • BOCSAWEN V BAJWA
     • Defences must not exist
     • Mixed tangible property
       • amalgam of properties generally treated as belonging to C
         • LUPTON V WHITE
         • property fungible C entitled to share proportionate to his contribution to it
       • Mixing cash in a bank account
         • lowest intermediate balance rule
           • JAMES ROSCOE (BOLTON)LTD v WINDER
         • Overddrawn bank account - money credited = dissipation of funds
           • BISHOPSGATE INVESTMENT V HOMAN
         • discredited swollen assets theory
       • mixed monies & dishonest trustee/ beneficiary
         • RE HALLETT'S ESTATE honest trustee principle
           • treat trustee as spending his own money from fund first
             • will not be applied to detriment of claimant/beneficiary RE OATWAY
               • applied where balance of monies dissipated
         • What can claimant recoup if assets are bought MIXED PART of MIXED FUND
           • Where shares of parties contributed to fund insufficent to pay full price which tracing started against
             • FOSKETT V McKEOWN
               • LORD MILLET "trustee wrongfully uses trust money to provide part of cost of acquiring an asset- beneficiary entitled to claim proportionate share or for amount of the misappropriated funds
               • beneficiary can elect a) charge for amount of trust fund used OR B) proportionate share
               • innocent contributors must be treated equally , gains and losses borne by contributors rateably
       • Mixed monies of TWO innocent parties
         • innocent volunteer has proprietary liability
           • innocent C's shre mixed fund in proportion to what they contributed neither C nor innocent volunteer have priority
             • RE DIPLOCK
         • if value of asset decreases, C and innocent volunteer share loss rateably
           • RE TILLEYS WILL TRUST
       • mixed monies of 2 innocent parties in a current Bank account
         • only applies if mixing of monies of innocent volunteer and beneficiary or two innocent volunteers
           • CLAYTON's CASE applies by way of modification
             • Does not apply to mixed fund where contest between trustee and C beneficiary
             • Exceptions
               • where it would be impracticable
               • where it would cause injustice to C
               • where fund not genuinely mixed
               • where shown that parties had contrary intention
               • where clear conflict with presumed intention of parties
           • Rule : First in First out
             • ONLY current bank accounts
           • applies regardless of who mixes monies

2. Personal Tracing

   • Criteria for Claim
     • C must have legal title( absolute owner or trustee)
     • Cannot trace past first innocent recipient
     • D must not have not have defences
       • Full consideration
         • Change of position SCOTTISH EQUITABLE V DERBY, LIPKIN GORMAN V KARPNALE
           • Estoppel by representation JORDEN V MONEY
           • accompanied by representation by payer
             • relied upon by D to his detriment
               • reliance : SOUTH TYNESIDE BC V SVENSKA INTERNATIONAL PLC (not necessarily detrimental)
               • Acted in good faith NIRU BATTERY MANUFACTURING COMPANY V MILESTONE TRADING LTD
         • D paid in full/ given services to full value of what he recieved
       • wrongdoer never has a defence

3. Tracing into Cash

   • Cheque withdrawl
   • common law
     • Proprietary tracing at common law into UNMIXED bank account possible
       • BANQUE BELGE POUR L'ETRANGER V HAMBRUCK
       • Cheque withdrawl UNMIXED bank do not defeat claim
         • BANK TEJERAT V HONG KONG AND SHANGHAI BANKING CORPORATION
       • claim ends as soon as trust property mixed with his own
     • personal tracing
       • only have to prove property in hand of C
       • mixing value = no consequence unless mixed before D recieves them
     • not possible to trace C's monies that are mixed
       • includes telegraphic transfer and other electronic means
         • AGIP AFRICA LTD V JACKSON
         • Notional mixing prevents tracing

4. Tracing in equity

   • remedies
     • declaration of a charge on a mixed fund
       • RE HALLETT
       • Property bought from mixed fund/ proportionate share of asset or fund
         • FOSKETT V McKEOWN
     • Subrogation- beneficiaries money used to pay off D's debt
       • debt no longer exists BUT new debt in beneficiaries favour for amount owed for debt
         • secured against D's property
       • BOCSAWEN V BAJWA
   • Defences to tracing in equity
     • bona fide purchaser for value without notice of origins of stolen property
       • PILCHER V RAWLINS
     • COMMERCIAL SETTING bona fide purchaser without knowledge
       • POLLY PECK V NADIR
       • Consideration provided by D in return for stolen goods
       • Goods/ services provided in return for monies recieved
         • HEADSTART GLOBAL FUND LTD V CIRCO BANK NV & ORS
     • INEQUITY MUST NOT RESULT FROM RELIEF
       • He who comes to equity must do equity
         • ALLAN V REA BROTHERS TRUSTEES LTD
       • Used by innocent volunteer who would have proprietary liability
   • personal claim
     • Wrongdoing trustee always has personal liability in breach of fiduciary duty