Hey there! Sign in to join this conversationNew here? Join for free
    • Thread Starter
    Offline

    0
    ReputationRep:
    Question
    In January 2015, Jake stole £10,000 cash from Terry. Jake then deposited that £10,000 in his current account, which already contained £5,000 of Jake’s own money. Jake immediately spent £5,000 on a party for all his friends, using money from that account.

    In February 2015, Jake received a cheque for £20,000 from Santiago Newspapers as a prize for winning a caption competition in the newspaper. Jake knew that this must have been a mistake as he did not enter that competition.Nevertheless, he deposited the cheque in his current account.Jake then withdrew £30,000 from that account and used themoney to pay off an interest-only mortgage he had taken out 10years previously in order to purchase a small garage in London.Although he had bought the garage, it is now worth £300,000.

    In March 2015, Jake took £5,000 from Gina’s trust fund, of which Jake was the sole trustee, and deposited the money in his current account. Jake then transferred £5,000 to his sister, Rosa,as a birthday present for her. Rosa used that money to purchase shares, which have already trebled in value. To celebrate hergood fortune, Rosa has recently liquidated some of her other investments and spent the proceeds of £10,000 on a luxuryholiday.

    Jake is now bankrupt.Advise Terry, Santiago Newspapers and Gina.

    A couple of issues I am unclear on:

    - Can a thief be said to hold stolen property on trust for the victim? Lord Browne Wilkinson in Westdeutsche v Islington said something along those lines but a lot of textbooks say that there is no right to trace when money is stolen by a thief because there exists no fiduciary relationship between the parties (one of the requirements of equitable tracing).
    - Does this mean T would have only personal remedies against J, and no likelihood of restitution because J is now insolvent and he does not have a proprietary claim?

    - Also for the second case involving the newspaper company (S) - it looked to me like a case of dishonest receipt of trust property (Akindele test) , but the problem was whether a prize/gift could be treated as trust property in the first instance ?
    - This is because Iassume legal title in the property and equitable interest in the property would pass at the same time where a gift is concerned, and even if the legal title is improperly vested, equity stands by the maxim that ‘it will not perfect animperfect gift’. This would lead to the conclusion that S (or the intended donee) have no remedy against J in equity, which seems extreme, given he knew that the gift was not intended for him.

    If someone could advise on any of these points and how they would approach the question that would be great!
    Offline

    19
    ReputationRep:
    i) Don't think there is much else to add. There is a High Court of Australia case that agrees with Lord B-W (Black v S Freedman). If you decide that equitable tracing should not be available then you would still discuss common law tracing.

    ii) I don't see how knowing receipt comes into it. Akindele arguably doesn't require there to be any trust property (there certainly wasn't any in that case), merely that there is property transferred in breach of fiduciary duty. Lord Nicholls doubted that in Criterion Properties v Stratford but it has been accepted in other cases. But on these facts, there doesn't even seem to be a breach of fiduciary duty. A simple mistake, even a spectacularly careless one, is not a breach of fiduciary duty. I suppose Bristol & West Building Society v Mothew is authority for that. This looks to me to be just a mistaken payment. The question is then whether a mistaken payment is held by the recipient on trust. You can read Lord B-Ws judgment in Westdeutsche again for some insight on that. He analyses Chase Manhattan v Israel British Bank and says that the constructive trust imposed there can be explained because the payee learned about the mistake while it still held the payment or its traceable proceeds. If you think that analysis is correct then a constructive trust in the £20,000 would arise on your facts because Jake also knew of the mistake.
    • Thread Starter
    Offline

    0
    ReputationRep:
    (Original post by Forum User)
    i) Don't think there is much else to add. There is a High Court of Australia case that agrees with Lord B-W (Black v S Freedman). If you decide that equitable tracing should not be available then you would still discuss common law tracing.

    ii) I don't see how knowing receipt comes into it. Akindele arguably doesn't require there to be any trust property (there certainly wasn't any in that case), merely that there is property transferred in breach of fiduciary duty. Lord Nicholls doubted that in Criterion Properties v Stratford but it has been accepted in other cases. But on these facts, there doesn't even seem to be a breach of fiduciary duty. A simple mistake, even a spectacularly careless one, is not a breach of fiduciary duty. I suppose Bristol & West Building Society v Mothew is authority for that. This looks to me to be just a mistaken payment. The question is then whether a mistaken payment is held by the recipient on trust. You can read Lord B-Ws judgment in Westdeutsche again for some insight on that. He analyses Chase Manhattan v Israel British Bank and says that the constructive trust imposed there can be explained because the payee learned about the mistake while it still held the payment or its traceable proceeds. If you think that analysis is correct then a constructive trust in the £20,000 would arise on your facts because Jake also knew of the mistake.
    Thanks for the help!

    With regards to the third point (misappropriation of trust property by J from G) - could this still be traced to the innocent volunteer R?

    And in terms of remedies I take it Clayton's rule applies, as there a competing claims to a current bank account - or would this change because J is now insolvent?

    Under Foskett , I would assume both S + G would prefer to claim a proportionate share of the assets which have increased in value (house + shares respectively), which means the only claim on the now defunct bank account would be from T.

    Just wondering if you'd agree with that reasoning
    Offline

    19
    ReputationRep:
    Been a while since I've looked at tracing.

    i) Can trust property be traced to an innocent volunteer R?

    Yes. Can property be traced when the innocent party are the ones doing the substituting? I think Foskett v McKeown says yes. Trustee of the property of FC Jones v Jones suggests yes too, but the reasoning in that case is highly suspicious to me. The innocent volunteer spending other money on a luxury holiday is no doubt intended to raise the spectre of 'change of position'. But on the conventional view, if you see tracing as concerned with 'hard-nosed property rights' like Lord Millett, then change of position ought not to be a defence. If you think tracing into substitute property reverses an unjust enrichment then you might think differently.

    ii) I'm sure you are expected to discuss Clayton's case and the various dicta against it. For my part I doubt it will ever be applied again, but perhaps you could say what the position would be if it did apply, and conversely if pari passu or some rolling charge type arrangement applied.

    iii) Unless there are some transactions we aren't told about, there is nothing in the bank account anyway, is there?
    • Thread Starter
    Offline

    0
    ReputationRep:
    (Original post by Forum User)
    Been a while since I've looked at tracing.

    i) Can trust property be traced to an innocent volunteer R?

    Yes. Can property be traced when the innocent party are the ones doing the substituting? I think Foskett v McKeown says yes. Trustee of the property of FC Jones v Jones suggests yes too, but the reasoning in that case is highly suspicious to me. The innocent volunteer spending other money on a luxury holiday is no doubt intended to raise the spectre of 'change of position'. But on the conventional view, if you see tracing as concerned with 'hard-nosed property rights' like Lord Millett, then change of position ought not to be a defence. If you think tracing into substitute property reverses an unjust enrichment then you might think differently.

    ii) I'm sure you are expected to discuss Clayton's case and the various dicta against it. For my part I doubt it will ever be applied again, but perhaps you could say what the position would be if it did apply, and conversely if pari passu or some rolling charge type arrangement applied.

    iii) Unless there are some transactions we aren't told about, there is nothing in the bank account anyway, is there?

    Thanks again for the help!

    Just a final question on the subject of remedies - would I be correct in saying both T and S have a right to a proportional charge over the £300,000 garage that J has paid off with their money? So T would get a 100k charge as he had 10k on constructive trust, and S would get a 200k charge as they had 20k on constructive trust? This follows the principle in Foskett that the beneficiary's have a choice between a proportion of the asset or restitution (which in this case is impossible since J is bankrupt).

    And as for G - she would only have a right to the £5,000 left in R's share portfolio as the £10,000 spent on the holiday is no longer identifiable/traceable and equity can give no remedy? Wouldn't this make the change of position defence irrelevant as R still has £5,000 (the exact amount of misapplied trust property) and the £10,000 holiday money is untraceable anyway, so G has no way to recover it?
    Offline

    19
    ReputationRep:
    (Original post by blu2)
    And as for G - she would only have a right to the £5,000 left in R's share portfolio as the £10,000 spent on the holiday is no longer identifiable/traceable and equity can give no remedy? Wouldn't this make the change of position defence irrelevant as R still has £5,000 (the exact amount of misapplied trust property) and the £10,000 holiday money is untraceable anyway, so G has no way to recover it?
    There is £15,000 left in R's share portfolio, the question says that she liquidated 'other investments'. If the change of position defence applied (which is extremely unlikely given what was said in Foskett v McKeown) G would recover £5,000 of the £15,000 in the share portfolio.

    You shouldn't simply state "the holiday money is untraceable". The holiday company may well have the money or its traceable proceeds still in their possession. The reason there is no remedy against the holiday company is that they are a bona fide purchaser of the money from R.

    re S and T your analysis needs to be more detailed. It seems fairly clear that S and T are entitled to be subrogated to the mortgage that their funds were used to pay off. If you want to argue that S and T are entitled to a proportionate share of the garage that the mortgage was secured over then you need to discuss backwards tracing and explain why (which I doubt, personally), only repayments of capital count when determining the proportionate share. After all, J had a £300,000 garage secured by a £30,000 mortgage even before he started his misdemeanours - so he was already 'up £270,000' in accounting terms. I would be surprised to learn that the best analysis was that he had lost that profit by using S and T's funds to repay the £30,000.
 
 
 
  • See more of what you like on The Student Room

    You can personalise what you see on TSR. Tell us a little about yourself to get started.

  • Poll
    Would you like to hibernate through the winter months?
  • See more of what you like on The Student Room

    You can personalise what you see on TSR. Tell us a little about yourself to get started.

  • The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

    Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

    Quick reply
    Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.