FOLLOWING & TRACING

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Definitive Case

Millet in Foskett v McKeown
Following
Tracing
Mixed Substitution
AFFIRMED: Sinclair Investments Case

Following

Pursuing original misappropriated asset as transferred

Mixed Substitution

Property contributed towards acquisition of new asset

Tracing

Focuses on asset-value & identifies value of substitute

Millet on Tracing

Tracing process of identifying assets, realm of evidence, tells nothing of legal/equitable rights to claim/remedy
AFFIRMED: Sinclair Investments Case

Sinclair Investments Case

AFFIRMS Millet in Foskett v McKeown
HELD: Tracing is a process, not a remedy

Objective of Following/Tracing

Locate asset/proceeds allowing C to bring proprietary claim
-Gain priority in insolvency
-Claim enhanced value
-Stop Crown from confiscating under Proceeds of Crime Act 2002 (Lexi Holdings Case)
-Identify those who interact with asset/traceable proceeds & allow C to bring personal claim for dishonest/unconscionable receipt

Lexi Holding Case

Following/Tracing can allow C to stop Crown from confiscating under Proceeds of Crime Act 2002

Choice of Claims/Defendants

1. Sue T personally for breach
2. Follow trust property into hands of T
3. Trace trust property into substitute assets
4. Personal action against 3rd party liable for Constructive Trust (unconscionable receipt) OR in Equity (dishonest assistance)
5. Personal action against one in receipt of property wrongly distributed by execs (Re Diplock)
6. Follow or trace property/substitute into hands of 3rd party (NOT Equity's Darling)

Re Diplock on Choice of Claims

Personal action against one in receipt of property wrongly distributed by Execs

CL: FOLLOWING

MCC Case
Conversion
Following into Mixtures

MCC Case

RULE: Legal owner, not Bs, can bring claim at law

Conversion

Following conveys immediate right to possession upon claim

Following into mixtures

Legal owner can follow tangible asset into mixture
Goods ID: Indian Oil Case
Not ID

Indian Oil Case

HELD: Goods mixed & of substantially same nature/quality cannot be separated

Goods Unidentifiable

Can claim proportionate part of mixture

CL: ACTION FOR MONEY HAD & RECEIVED

Lipkin v Karpnale

Lipkin v Karpnale

(Playboy gambling)
HELD: Solicitors can recover money as legal owner, PC not Bona Fide, Gambling Act renders gambling contracts unenforceable

CL: ISSUE WITH MONEY & BANK ACCOUNTS

Foskett v McKeown:
HELD: Bank owns money in Law & Equity, account holder owns debt

CL: TRACING

Banque Belge Case
FC Jones Case
Agip v Jackson
-NOTE: Can still trace through Equity

Banque Belge Case

HELD: Legal owner can trace to recover money had/received if NO MIXING

FC Jones Case

HELD: Legal owner can recover profits too

Agip v Jackson

Cannot trace at CL where money passes through bank's clearing system into another account as cannot follow chose in action

WHY IS CL DIFFERENT FROM EQUITY?

1. Misunderstanding of Taylor v Plummer
-LD Smith 1995 Article
-Millet in Jones v Jones
2. CL has Materialistic Approach
-Re Diplock

1. Misunderstanding of Taylor v Plummer

(Simple traceable exchange)
OBITER: Suggested not possible to trace through mixtures
-Was assumed to be CL case

LD Smith 1995 Article:

Demonstrated Taylor v Plummer was an Equitable case, not CL
-AFFIRMED: Millet in Jones v Jones

Jones v Jones

Millet affirmed LD Smith's 1995 Article's assertion that Taylor v Plummer was a misunderstanding of CL

2. CL Materialistic Approach

-Re Diplock: Prevent identification of mixed money
-Equity more metaphysical, allows extraction from mixture (BUT requires fiduciary relationship)

DIFFERENCES BETWEEN CL/EQUITY

-CL: No tracing possible after mixing & withdrawals
-Equity: Must have fiduciary relationship
-Millet ARGUED: Should have need one approach as neither is right or remedy but merely a process
-NOTE: Canada allows CL tracing into mixtures

EQUITY: TRACING

Foskett v McKeown
Re Diplock

Foskett v McKeown

HELD: C traces asset-value

Re Diplock

(Ts distributed, trust failed, kin claimed):
-HELD: T personally liable for breach of fiduciary relationship, personal remedy against those in receipt
-COA HELD: C MUST show fiduciary relationship

EQUITY: CRITICISMS OF NEED FOR FIDUCIARY RELATIONSHIP

Re Goldcorp
Gironzantrale Case
Foskett v McKeown

Re Goldcorp

Fiduciary relationships:
-T/B, Principle/Agent, Client/Solicitor NOT Buyer/Seller

Girozontrale Case

Fiduciary relationship between thief/victim, victim can bring priority claim should thief go insolvent
-ARGUE: Shows how ridiculous need for fiduciary and arbitrary division between CL/Equity
-ARGUE: Incongruous with duty of loyalty/good faith

Foskett v McKeown

Millet:
-No logical justification for distinction, insistence upon fiduciary relationship produces capricious results for mixed substitutions (Girozontrale)

EVIDENTIAL PRESUMPTIONS

1. Innocent v Wrongdoer
2. Innocent v Innocent

1. Innocent v Wrongdoer

Presumption against wrongdoers
-Foskett v McKeown: HELD: Innocent B wins over guilty T
-If mixture deficient, B can place lien

Innocent v Wrongdoer: No Mixing, Property Purchased

B Can:
-Take property
-Place lien, personal remedy, for balance outstanding ( Re Hallets)

Re Hallet's

Remedy for no mixing, property purchased:
HELD: Can place lien, personal remedy for balance outstanding

Innocent v Wrongdoer: Mixing - Asset Purchased

B can:
-Place lien for only trust money & interest (Re Hallet)
-Take proportionate share of property including profit (Re Tilley)

RE Hallet

Remedy for Mixing - Asset Purchased
HELD: Place lien for trust money + interest

Re Tilley

Remedy for Mixing - Asset Purchased
HELD: Take proportionate share of property including profit

Innocent v Wrongdoer: Mixing - In Account

C brings charge against T's account

Innocent v Wrongdoer: Mixing - In Account - Withdrawals, Remainder Disippated

Re Hallet (Mixed C & Trust money with own, insufficient left)
-RULE:Withdrawals presumed Wrongdoer's money
-HELD: C/B can both trace & place lien against account

Innocent v Wrongdoer: Mixing - In Account - Withdrawals, Asset Purchased, Remainder Disippated

Re Oatway (T bought shares from mixed account, remainder dissipated)
-RULE: Withdrawal for valuable asset persumed innocent's money
-HELD: B can trace * place lien on valuable asset or claim remainder in account
-ARGUE: Cherrypicking

LIMIT ON B'S RIGHT TO TRACE

"Lowest intermediate balance rule" Roscoe v Winder
-Bishopsgate Investment Case
-COUNTER: Sinclair Investments Case

Roscoe v Winder

(Withdrew leaving ₤26, died with ₤36)
-HELD: C can only assert proprietary claim for ₤26
-RULE: B cannot bring proprietary claim for more than lowest balance in account, deposits NOT considered repayment UNLESS intent shown

Bishopsgate Investment Case

AFFIRMS Roscoe v Wilder
-RULE: B cannot bring proprietary claim for more than lowest balance in account, deposits NOT considered repayment UNLESS intent shown

Sinclair Investments Case

Neuberger
COUNTERS: Roscoe v Wilder
-HELD: Burden on Wrongdoer to show C's money disappears in "maelstorm" of interactions

Innocent v Wrongdoer: BACKWARDS TRACING

1. T purchases asset with credit card, pays off with trust:
2. T uses money to reduce bank overdraft to purchase asset

1. T purchases asset with credit card, pays off with trust:

-CANNOT trace as CCC bona fide

2. T uses money to reduce bank overdraft to purchase asset

-Bishopsgate Investment Case
-COUNTER: Foskett v McKeown

Bishopsgate Investment Case

-Dillon: ARGUED B can trace if ASSET purchased
-Leggatt: DISSENT: Asset acquired BEFORE misappropriation of money
-Henry: Agreed with both (useless git)

Foskett v McKeown

COUNTERS: Bishopsgate Investment
(Life Insurance)
-ISSUE: 1st premium led to ₤1m, trust premiums extended policy, kids argued B's entitled to trust, not profit
-HL HELD: Not as concerned with timing of transactions. B has equitable proprietary share in proceeds

CRITIC OF BACKWARDS TRACING

Conaghlen 2011 Article
Argues that backwards tracing should not be allowed as the law is unclear and hurts unsecured creditors
-MOST ACADEMICS DISAGREE WITH HIM

2. Innocent v Innocent

-Pari Passu
-Foskett v McKeown
-Clayton's Rule

Pari Passu

RULE: Both innocent, have equal but proportionate standing

Foskett v McKeown

HELD: Innocent constributors equal, no basis to subordinate, B cannot enforce lien where funds insufficent

Clayton's Rule

First in first out

Innocent v Innocent: Purchase of Assets: Innocent Volunteer

Takes trust property without notice but does NOT give value
-Re Diplock

Re Diplock

Where Innocent C mixes with B to purchase asset, B can trace & claim property in equal but proportionate shares

Innocent v Innocent: Purchase of Assets: Active Current Bank Accounts

T mixes with 2 innocent parties
-Clayton's Rule
-Barlow Clowes Case
-COUNTER: Russell-Cooke Case

Barlow Clowes Case

(₤115m owed, not available):
-COA: Considered three approaches:
1. Clayton's Case
2. Pari Passu Ex Post Facto Solution: Traceable funds remaining shared proportionately
3. North American Rolling Charge: Investors rank proportionately, assessed with every withdrawal
-HELD: Applied Clayton's Case BUT presumption displaced if
1. Contrary to B's intent
2. Where differentiating between Cs would be capricious & arbitrary & produces injustice
3. Impracticable due to number of deposits/withdrawals

Can displace Clayton's Rule if:

(Re Barlow)
1. Contrary to B's intent
2. Where differentiating between Cs would be capricious & arbitrary & produces injustice
3. Impracticable due to number of deposits/withdrawals

Russell-Cooke Case

COUNTERS: Clayton's Rule
(Timing of deposits pure chance)
HELD: Can displace Clayton's presumption with "slight counterweight", used Pari Passu approach. Completely dismissed NA Rolling Charge as onerous

INNOCENT V INNOCENT: LOANS

1. If T or Innocent recipient pays personal loan:
2. If T or innocent recipient pays mortgage:

1. If T or Innocent recipient pays personal loan:

CANNOT trace to bona fide purchaser

2. If T or innocent recipient pays mortgage:

Boscawen v Bajwa Case
HELD; Loan secured by charge on asset, C may take proprietary rights of former creditor: "Step into their shoes"
-NOTE: Different from personal claim of CCCs as mortgages are proprietary

PERSONAL LIABILITY WITHIN EQUITY

Re Diplock
HELD: Next of kin can recover money by equitable personal action
-NOTE: Personal liability not available in situations of Express Trust

LOSS OF RIGHT TO TRACE

1. Property must be identifiable: If property ceases to exist, Equity impotent (Re Diplock)
2. B cannot trace into hands of Equity's Darling: Complete defence
3. Change of Position: Defence against C's claim for restitution for unjust enrichment
-Lipkin v Karpnale: Goff HELD: Cannot trace if would cause greater injustice

Re Diplock

Loss of right to trace
1. Property must be identifiable: If property ceases to exist, Equity impotent

Lipkin v Karpnale

Loss of right to trace
-Goff HELD: Cannot trace if would cause greater injustice

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