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FOLLOWING & TRACING

STUDY
PLAY
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