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#equity #law #tracing
Tracing is a process by which property or assets substituted for it can be identified in the hands of recipients.
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#equity #law #tracing
However, tracing is also useful where money has been paid over to a recipient by mistake or where assets have accidentally become mixed and it is important to remember that the process of tracing does not require showing fault by the parties through whose hands you trace.
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#equity #law #tracing
Tracing is neither a claim nor a remedy but a process. It is the process by which the plaintiff traces what has happened to his property, identifies the persons who have handled it or received it, and justifies his claim that the money which they handled or received can properly be regarded as representing his property. Per Millett LJ in Boscawen v Bajwa [1995] 4 All ER 769.
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#equity #law #tracing
Following is the process of identifying the same asset as it moves from person to person.
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#equity #law #tracing
Tracing is the process of identifying a new asset as the substitute for the original. In Taylor v Plumer (1815) 3 M. & S. 562, a client gave money to his stockbroker, Walsh, to invest. Walsh purchased bullion and investments with the money and was caught making off to America with them. It was held that the client could claim the bullion and investments. On Walsh’s bankruptcy, his assignees in bankruptcy sought to recover them from the defendant client. They failed. Lord Ellenborough held:

It makes no difference in reason or law into what other form, different from the original, the change may have been made, whether it be into that of promissory notes for the security of the money which was produced by the sale of the goods or the principal as in Scott v Surman (1742) or into other merchandise, as in Whitecomb v Jacob (1710) for the product of or substitute for the original thing still follows the nature of the thing itself, as long as it can be ascertained to be such...

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#equity #law #tracing
Historically, common law only provided an action for specific recovery of land not chattels, so only rarely has tracing at common law led to a proprietary claim. One example is the case of Taylor v Plumer (above), where the owner was himself able to recover his property by seizing it.
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#equity #law #tracing
The most usual remedy at common law is a personal claim against the recipient for the value of the property they have received. In the case of money, the action will be for money had and received. According to Millett J in Agip (Africa) Ltd v Jackson [1990] Ch 265:

Tracing at common law ... serves an evidential purpose. The cause of action is for money had and received. Tracing at common law enables the defendant to be identified as the recipient of the plaintiff’s money and the measure of his liability to be determined by the amount of the plaintiff’s money he is shown to have received.

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#equity #law #tracing
The court will recognise that the claimant is the equitable owner of the property in the simple case where the defendant held the original property and thus the substituted property on trust for the claimant. The claimant can therefore claim the property itself or, where their money has been mixed with another’s and the mixture used to purchase a new asset, a proportion of it.
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#equity #law #tracing
it may well be new trustees seeking to recover the trust property wrongfully given away by the old trustee (Young v Murphy [1996] 1 Victoria Rep 279) or a wrongdoing trustee trying to restore property to the trust (Montrose Investments Ltd v Oriin Nominees Ltd [2002] EWCA Civ 1032) or it could be a beneficiary under the trust seeking to recover the property to be held as part of the trust fund or for himself if absolutely entitled on termination of the trust.
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#equity #law #tracing
A charge will be imposed on the property which enables the claimant to recover the value of their money that went into the property, but not to claim ownership of the asset itself where the property has depreciated in value.
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#equity #law #tracing
Where the claimant’s money is used to discharge a secured debt, the claimant is allowed to ‘stand in the shoes’ of the creditor, and gain the benefit of the creditor’s charge
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#equity #law #tracing
A personal claim operates against the person, rather than attaching to any particular asset in the defendant’s hands. It therefore relies on the defendant having sufficient funds to meet the claim. If the defendant is insolvent, a claimant with a personal remedy will take his place with the other creditors and will only receive a percentage of the sum he is awarded. A proprietary claim to ownership, however, gives a right to particular property itself which never became part of the defendant’s property. This property will not go into the general pool to be shared amongst the creditors. In the case of an equitable lien for a sum of money this ensures that the claim for repayment can be met even if the defendant is insolvent.
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#equity #law #tracing
As a proprietary claim to ownership gives a right to particular property, it can entitle the claimant to any increase in the value of that property.
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#equity #law #tracing
Under The Limitation Act 1980, a personal claim must be brought within six years. This does not apply to a proprietary remedy against a trustee within Limitation Act 1980, s 21(1), although the equitable doctrine of laches may apply in a rare case.
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#equity #law #tracing
Only a person with legal title can use the common law rules, so a beneficiary under a trust cannot trace property and then claim it at law. However, they or their trustee can do this in equity.
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#equity #law #tracing
Property can be traced at common law as long as the means of identifying it still exist. This is straightforward where the property being traced is the original asset, but becomes difficult where the property has changed form, e.g. by being substituted or exchanged for other property or mixed with something else. It is no objection if the original property has been substituted for other property provided the property or its product has at all times remained identifiable. For example, where money was used to buy investments and bullion: Taylor v Plumer (1819) 3 M&S 562, or has been paid into a separate bank account: Banque Belge pour L’Etranger v Hambrouck [1921] 1 KB 321.
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#equity #law #tracing
The inability of the common law to trace through mixed funds, coupled with the fact that, historically, common law only provided an action for specific recovery of land and not chattels, means that tracing at common law only rarely leads to a proprietary claim in the true sense. Tracing at common law is therefore often simply the means of identifying what has happened to the claimant’s property and generally leads only to a personal claim for the value of that property against the recipient
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#equity #law #tracing
In the case of money, unless the actual coins or notes can be identified, the claimant must use the action for money had and received. Here the tracing process is used to identify the defendant as having received the claimant’s money. The claimant then seeks to recover an equivalent sum via a personal claim.
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#equity #law #tracing
The defendant’s knowledge is irrelevant, as liability is not dependent on fault. However, it is necessary to show that the defendant was unjustly enriched: per Lord Templeman in Lipkin Gorman v Karpnale Ltd. … in a claim for money had and received by a thief, the plantiff victim must show that money belonging to him was paid by the thief to the defendant and that the defendant was unjustly enriched and remained unjustly enriched … an innocent recipient of stolen money will be enriched if the recipient has not given full consideration.
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#equity #law #tracing
Because these actions are personal and not proprietary, the defendant is still liable to repay the value of the property they received even if they no longer have it (or has mixed it with their own): Agip (Africa) Ltd v Jackson and Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548.
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#equity #law #tracing
Requirements for the Change of Position Defence
Lord Goff required two things for the recipient’s actions to count as a relevant change of position:
1. Expenditure by the recipient in reliance on the payment he had received, so that the recipient was ‘disenriched’.
2. That the expenditure was extraordinary, in the sense that it would not have been incurred but for receipt of the claimant’s funds.
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#equity #law #tracing
In Dextra Bank & Trust Co Ltd v Bank of Jamaica [2001] UKPC 50 it was held that a defendant who changed their position in reliance on an anticipated receipt that is subsequently received can rely on the defence
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#equity #law #tracing
In Scottish Equitable plc v Derby [2001] 3 All ER 818, the Court of Appeal held that the payment of debts cannot normally be relied on as a change of position, as the defendant had to pay them anyway.
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#equity #law #tracing
Extraordinary Expenditure
Lord Goff in Lipkin Gorman v Karpnale held

…the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things.

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#equity #law #tracing
the availability of the defence does not depend upon the assets bought and subsequently consumed having any extraordinary characteristics in themselves. In Philip Collins Ltd v Davis [2000] 3 All ER 808, two backing musicians to Phil Collins were overpaid royalties from the sale of records. They used this money to supplement their everyday standard of living. Jonathan Parker J held the change of position defence could apply as although the assets acquired were of an everyday nature to the defendants, the amount they had acquired and the expense they had consequently incurred was extraordinary.
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#equity #law #tracing
While stating that nothing should be said to inhibit the development of the defence, Lord Goff in Lipkin Gorman Karpnale made it clear at 580 that:

the defence is not open to one who has changed his position in bad faith … the defence should not be open to a wrongdoer.

He gave as an example of bad faith a defendant who had paid away the money, with knowledge of the facts entitling the claimant to restitution.
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#equity #law #tracing
The Court of Appeal Re Diplock [1948] Ch 465 held there to be two pre-requisites to tracing in equity:
1. A fiduciary relationship;
2. An equitable proprietary interest in the property being traced.
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#equity #law #tracing
In Re Diplock [1948] Ch 465, the next of kin sued the executors and also the charities themselves for the return of the money. The action against the executors was compromised with the court’s approval, the executors agreeing to repay £15,000 of the £203,000 out of their own pockets. The next of kin sought to recover the balance from the charities concerned. The right to trace and make a proprietary claim in equity was considered at length by the Court of Appeal in Re Diplock, in case their decision on the availability of a personal claim (see later) was reversed by the House of Lords. However, the House of Lords affirmed their decision on the personal claim and did not consider it necessary to discuss the proprietary claim.
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#equity #law #tracing
The fiduciary relationship need not be between the claimant and the defendant. The Court of Appeal in Re Diplock held that the claimant must show that there is a fiduciary relationship between himself and the defendant or between himself and a person who transferred the property to the defendant. In Re Diplock, the fiduciary relationship was between the claimant and the executors and the action was against the charities to which they had handed the money.
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#equity #law #tracing
The remedy is not confined to claims between trustee and beneficiary, but to other fiduciaries, e.g. that of solicitor and client Re Hallett’s Estate (1880) 13 ChD 696 and accountant and employer in Agip v Jackson (above).
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#equity #law #tracing
Fiduciary relationships have been found very easily in circumstances where tracing is sought: Lord Templeman in Lipkin Gorman v Karpnale Ltd approved the Australian case of Black v Freedman (1910) 12 CLR 105, where it was said that a thief holds stolen money on trust for the true owner and that the true owner may therefore trace in equity into a mixed fund. Lord Browne-Wilkinson was of the same view in Westdeutsche [1996] AC 669 at 716.
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#equity #law #tracing
Similarly, in Chase Manhattan Bank v Israel-British Bank (London) Ltd [1981] Ch 105, Goulding J held that a person who paid money to another under a mistake of fact retained an equitable interest and the conscience of the payee was subjected to a fiduciary duty to respect that interest. The decision in Chase Manhattan was discussed in the House of Lords in Westdeutsche, where the judge’s reasoning was doubted in holding that the Israel-British Bank held the additional $2,000,000 on constructive trust when it knew of the mistake made by Chase Manhattan. Lord Browne-Wilkinson at p 715 said that mere receipt gave rise to no trust but the retention of the moneys after the receiving bank learned of the mistake ‘may well have given rise to a constructive trust’ which allowed a claim in equity, being, it seems, a personally liability to account as a constructive trustee under the knowing receipt head
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#equity #law #tracing
Into Whose Hands can Property be Traced?
  • It can be traced into the hands of the person who misapplied it.
  • It can be traced into the hands of a person who received it with knowledge that it was misapplied. This will lead to a proprietary claim and a personal action (see 18.4 below and Chapter 19 for further details on personal claims).
  • It can also be traced into the hands of an innocent volunteer, that is a person who is given the property without providing consideration and who has no knowledge of the property’s provenance (Re Diplock).
  • Property cannot be traced into the hands of a bone fide purchaser for value without notice. According to dicta in Lipkin Gorman v Karpnale Ltd, the consideration given by the purchaser need not be adequate.
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#equity #law #tracing
Property can only be traced if it is identifiable. If it has been dissipated, e.g. spent on food, drink or a holiday, it will no longer be identifiable and cannot be traced. Similarly money paid into an overdrawn bank account (Bishopsgate Investment Management v Homan [1995] Ch 211) or spent paying off other unsecured debts (as in Re Diplock) cannot be traced. Indeed, if S tries to create a trust of his money by sending his cheque to T Ltd expressly so that the money will be held on trust for him, no trust ever arises if the money was lost by payment into an overdrawn bank account: Re BA Peters plc [2008] EWCA Civ 1604.
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#equity #law #tracing
Similarly where trust money or property has been mixed with other funds, the beneficiaries have the right to a proportionate share of the property acquired with the mixed fund or an equitable charge (or lien) over the property mixture, to secure their claim. This was made clear by the House of Lords in Foskett v McKeown [2001] 1 AC 102 which rejected Re Hallett’s Estate (1880) 13 Ch D 696 as apparent authority for a claimant only having a charge over property of the defendant fiduciary that had been purchased with mixed money.
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#equity #law #tracing
In Foskett v McKeown, Lord Millett said:

‘Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money.’

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#equity #law #tracing
Where the trustee has mixed the funds of two or more trusts, according to Re Diplock, the two trusts must share the funds rateably
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#equity #law #tracing
There is no option of claiming an equitable charge on the fund here, as that would prefer one party’s claim at the expense of the other. Where both parties are innocent victims of the mixing, this would be inappropriate.
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#equity #law #tracing
The situation is different where an innocent volunteer spends the claimant’s money on an asset which he already owns.
In cases where no value is added to the asset, the claimant’s money is treated as dissipated and cannot be traced. In Re Diplock the court gave the example of an innocent volunteer who spent trust money in altering his house to his personal needs without adding one penny to its value.
In cases where value is added to the asset, Lord Browne-Wilkinson said obiter in Foskett v McKeown that the trust would not be entitled to a proportion of the value of the asset but ‘at most a proprietary lien’ over the asset. Furthermore the innocent volunteer may have a defence to the claim if it would be inequitable to enforce it
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#equity #law #tracing
Subrogation means being in another’s place – stepping into another party’s shoes.
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#equity #law #tracing
However, this is a distinct type of subrogation specifically entitled reviving subrogation. Where a secured debt is paid off with the use of misappropriated assets, subrogation allows the debt to be ‘revived’ in favour of the party whose money was used to pay off the original secured debt.
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#equity #law #tracing
In Boscawen v Bajwa [1995] 4 All ER 769, the simplified facts were that Mr Bajwa had entered into a contract to sell his house. The house was mortgaged to the Halifax Building Society. The contract, unknown to the parties, failed to comply with s2 Law of Property (Miscellaneous Provisions) Act 1989 and so was void. The purchaser sought a loan from Abbey National, which paid the loan money to the purchaser’s solicitors. As a result of a muddle between them and Mr Bajwa’s solicitors, this money was paid over to the Halifax Building Society before the transfer of title to the purchaser was completed. The Halifax used the money to discharge its mortgage. The transfer was not completed and the sale fell through. Abbey National sought to trace its money and have a charge over the property by way of subrogation to the Halifax Building Society; that is, Abbey National wished to step into the shoes of the Halifax and have a charge over Mr Bajwa’s house. The Court of Appeal allowed this, holding that the charge had not been redeemed for Mr Bajwa’s benefit. Thus where the claimant’s money has been used to pay off secured debts, he may be subrogated to the position of the creditor and be given a charge over the property. However, it is important to realise that the terms of the revived mortgage can be no more favourable to the claimant than the terms of the original mortgage were to the original lender.
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#equity #law #tracing
Where the claimant’s money is paid into the wrongdoer’s bank account and mixed with the wrongdoer’s money, the claimant has an equitable charge on the bank account for the amount of money paid in - Re Hallett’s Estate.
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#equity #law #tracing
When payments are made out of a mixed bank account, the claimant’s equitable charge over the mixed fund attaches to assets purchased with such payments: El Ajou Dollar Land Holdings plc [1993] 3 All ER 717 at 736. If, however, a claimant wants more than a charge by seeking a proportionate share of an appreciated asset it will be necessary to rely upon presumptions made against a wrongdoer until he has put things right. The trustee, because he was responsible for the wrongful mixing, bears the onus of proving that he unmixed the money eg by restoring to the trust fund the full amount necessary to remedy his breach of trust.
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#equity #law #tracing
The Presumption in Re Hallett’s Estate: dissipated money is that of the trustee who rightfully used his own money
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#equity #law #tracing
In Re Oatway [1903] 2 Ch 356,T mixed £3,000 of trust money with over £4,000 of his own. He then spent £2137 to buy some Oceana shares for himself when he was not entitled to do this unless and until he had restored the £3000 to the trust, so he could not claim entitlement to the shares. He dissipated the rest of the money in the account. Applying Re Hallett’s Estate as to the imposition of a charge over the fund, Joyce J held that the beneficiaries were entitled to a charge on the Oceana shares (which were worth more than their purchase price but less than the trust money paid into the account).
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#equity #law #tracing
In Re Tilley’s WT [1967] Ch 1179, however, the claimant (strictly speaking her personal representative) was not allowed a proportionate share of a house bought by the deceased female trustee, apparently inadvertently using some trust money in her account, before she died leaving enough in her residuary estate to cover the amount of the claim. Ungoed-Thomas J was kind to the elderly woman, seemingly regarding her as an ‘innocent’ trustee so that since she could have bought the house without recourse to the trust money, no proportionate share was permitted (though the judge admitted that he would have imposed a lien over the house to secure the money claim if requested). This approach seems fair for innocent volunteers who would have used their own money if they had realised that some of the money being used was trust money, but Mrs Tilley was trustee of her husband’s estate for herself for life remainder for her claimant daughter- and Mrs Tilley was a successful businesswoman
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#equity #law #tracing
In Shalson v Russo [2003] EWHC 1637 (Ch), [2005] Ch 281 Rimer LJ (as he then was) considered that a beneficiary can claim earlier payments used to purchase valuable assets as coming from his own money rather than the trustee’s. It was said that the beneficiary may be allowed to ‘cherry pick’ if the only contest is between the beneficiary and the wrongdoer, to avoid the wrongdoer being left with all the cherries.
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#equity #law #tracing
In Turner v Jacob [2006] EWHC 1317, the High Court, however, did not allow a beneficiary to chose an earlier payment out when there was still money in the trustee’s bank account to satisfy the beneficiary’s claim.
In this case a husband gave £75,000 to his estranged wife to pay off the mortgage of a property on the basis that she would give the property to her daughter. She did not do this. The judge held that the £75,000 was held on trust for the daughter. The mother then dissipated all but £10,339 of this money, but that amount was still held on trust for the daughter. The mother put more money into her account as an attempt to remedy the breach that had taken place, but that money could not replace the dissipated money as per Roscoe v Winder (see below). The mother then bought two properties with the money she had taken from the account, which went up in value. She died and left the residue of her estate, which included what was in the bank account, to her daughter. The daughter sensibly wanted to trace her £10,399 into the second property, rather than have it treated as a debt due to her out of the residuary estate which she had, anyhow, inherited. She was not allowed to do so because £10,399 was still available in the account. Patten J had earlier rejected claims by the daughter to a common intention constructive trust interest or an equitable proprietary interest and was happy to dismiss her tracing claim without any detailed consideration of the issues.
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#equity #law #tracing
It is noticeable that both Tilley and Turner were family disputes that were most unlikely to be appealed, so that, perhaps, the judges allowed themselves a little leeway on the merits of the case , feeling it inequitable to allow the claimant a proportionate share. In Shalson the assets of the claimant had been appropriated by a wrongdoer, who had ultimately dissipated large amounts of the mixed fund. In this sort of scenario it makes sense for the innocent party to be able to claim the wrongdoer used their own assets on these dissipations as far as possible. This dovetails with the general rule of evidence in Armory v Delamirie (1722) 1 Stra 505 that evidential uncertainty created by wrongdoing will be resolved against the wrongdoer.
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#equity #law #tracing
The lowest intermediate balance rule – Roscoe v Winder: If the wrongdoer spends the claimant’s money and then pays in money of his own, this money is not deemed to be a repayment to the claimant.
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#equity #law #tracing
In Roscoe v Winder [1913] 1 Ch 62, the plaintiffs sold their business to Mr Wigham and it was agreed that he should collect in certain debts on their behalf. He did this and paid £450 into his account. He then withdrew money from the account leaving £26. Later, he died leaving £360 in the account. The court held that the plaintiffs’ proprietary claim over the account was limited to the lowest intermediate balance of £26. Sargant J said that later payments into the account would only be presumed to be repayments to the trust where the trustee shows such an intention and he gave the example of the trustee repaying money into a separate account opened for the trust.
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#equity #law #tracing
If the account is exhausted during the intermediate period, the beneficiaries cannot trace at all. This was the conclusion of the Court of Appeal in Bishopsgate Investment Management Ltd v Homan [1995] Ch 211, which affirmed and applied Roscoe v Winder.
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The rules described above for mixing between the claimant’s money and the wrongdoer’s own money do not apply where the claimant’s money is mixed with either another trust fund or the money of an innocent volunteer. To discover which rules apply in such instances, it will first be necessary to ascertain whether the account is a deposit account or an active current account.
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Deposit accounts
The general rule is that the two funds share the mixture in the account rateably: Re Diplock’s Estate, applying Sinclair v Brougham [1914] AC 348.
Payments out of the account will also be shared rateably. For example, if trust A’s contribution to the mixed fund was £30,000 and trust B’s was £10,000 and £20,000 is withdrawn to buy a car, Trust A will own three quarters of the car and trust B will own one quarter.
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There is a different rule for payments out of active running accounts – most typically current accounts. Here the rule in Re Clayton’s Case (1816) 1 Mer 572 applies. This rule states that the first payment in to the account will be the first payment out. The rule has been applied as between two trusts and between a trust and an innocent contributor, e.g. in Re Diplock.
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Therefore it can be said that the FIFO rule should not be applied if: (i) It was contrary to the express or implied intentions of the claimants; (ii) It was impractical; or (iii) It would cause injustice.
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Court of Appeal in Barlow Clowes International Ltd v Vaughan [1992] 4 All ER 22 has reluctantly confirmed that the rule is still good law, although subject to any contrary intention which the courts are ready to find. The rationale for this, as explained by Dillon LJ, is that the rule has been enshrined in English law for so long that it can only be replaced by a House of Lords (presumably now a Supreme Court) judgment. The case concerned the collapse of the Barlow Clowes investment company in Gibraltar. Investors had paid into investment plans, but the money had been stolen and the company was left owing £115m with assets of far less than that. Some investors argued that the rules in Re Clayton’s Case should be applied. This would mean that the later investors would recover nearly all their money, and the earlier investors, nothing. Woolf LJ held: ‘The rule need only be applied when it is convenient to do so and when its application can be said to do broad justice having regard to the nature of the competing claims. It is not applied if this is the intention or presumed intention of the beneficiaries. The rule is sensibly not applied when the costs of applying it is likely to exhaust the fund available for the beneficiaries.’ On the facts of the case it was decided that the investment fund was regarded by the investors as a common pool, and that they should share rateably in what remained because they had experienced a common misfortune. Accordingly, the court ordered a rateable distribution among the claimants who were investors.
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More recently, in Charity Commission v Framjee [2014] EWHC 2507 (Ch), Henderson J disapplied Clayton’s Case when distributing the assets of a fundraising website but nevertheless considered that case to be ‘probably still the default rule’ (para 49).
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Note that, although the rule in Clayton’s Case applies to a claim between two (or more) trusts and to a claim between a trust and an innocent contributor (Re Diplock and, obiter, in Re Hallett’s Estate), it does not apply as between beneficiaries and the trustee who has mixed trust funds with funds of his own (Re Hallett’s Estate).
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A trustee pays £3,000 of Trust X’s money into his current account which was previously empty. He then pays in £2,000 of his own money and then £5,000 of Trust Y’s money. He withdraws £2,000 and dissipates it. He then withdraws £3,000 and dissipates that money as well. There is £5,000 left in the account.
First look at the situation between the trustee and the trust funds. Re Hallett’s Estate will apply so the first payment out of £2,000 will be the trustee’s own money.
Then look at the situation between the two trust funds. It is a current account, so, according to Re Diplock, the rule in Clayton’s Case applies. The first payment in was from Trust X, so the first payment out of £3,000 is Trust X’s money. Trust Y can claim the £5,000 left in the bank account.
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A trustee has £2,000 of his own money in his deposit account. He puts in £3,000 of Trust B’s money and then £6,000 of Trust C’s money. He spends £6,000 on shares which are now worth £12,000. He then dissipates the remaining £5,000. Later he pays in £1,000.
First look at the situation between the trustee and the trust funds and apply Re Oatway as the later funds are dissipated. This means the £6,000 spent on shares will all be money from the two trusts rather than the trustee’s own money. Then look at the situation between the two trusts. They share rateably (Re Diplock), so Trust B has 1/3 rd of the shares (now worth £4,000) and Trust C has 2/3 rd of the shares (now worth £8,000). The dissipated money includes £2,000 from the trustee’s money, £1,000 from Trust B and £2,000 from Trust C. This trust money cannot be replaced by the later payment in of £1,000 (Roscoe v Winder).
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A proprietary claim may not be allowed if it is inequitable. In Re Diplock’s Estate the charity, a hospital, had spent the money improving its own pre-owned property. The next- of-kin’s interest in the property would have been a charge, enforceable by sale. The Court of Appeal did not allow this on the grounds that it would have been inequitable to force a sale.
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While at common law there will always be a restitutionary personal action against the recipient of the claimant’s property, this is not the case in equity. There will be no personal action against an innocent volunteer who dissipated trust property before he was aware that it was such (Re Montagu’s Settlement [1987] 1Ch 264; Independent Trustee Services Ltd v GP Noble Trustees Ltd [2012] EWCA Civ 195 at [76], [84]). A personal action will only arise against a recipient whose knowledge of the provenance of the property would make it unconscionable for him not to return it but deal with it as his own. Bank of Credit and Commerce International v Akindele [2001] Ch 437
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The Court of Appeal in Re Diplock held that, where money is wrongly paid out in the administration of an estate, a personal action is available against those who received the money. This was affirmed by the House of Lords on appeal where the case became Ministry of Health v Simpson [1951] AC 251. As a result, the next of kin were able to use the personal action to recover the balance of the Diplock money (£203,000 less £15,000 paid by the executors from their own pockets) from the charities even where proprietary claims were not possible. The Court of Appeal stated that this remedy is subject to two limitations:
  1. The unpaid beneficiaries should firstly sue the personal representative who has acted wrongly, the beneficiaries’ personal claim against those overpaid, or wrongly paid, being limited to the amount which cannot be recovered from the personal representative.
  2. The entitlement is to claim the principal sum only, not the interest on it. In Re Diplock, which was affirmed by Ministry of Health v Simpson, no defence was allowed to the personal claim.
However since then the House of Lords has developed the defence of change of position in Lipkin Gorman v Karpnale and it is generally accepted that this defence would be applicable to such a claim.
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