WTF is tracing?? Watch

Tufts
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Someone discuss tracing with me now! :eek:
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King Hippo
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Do you mean when someone can trace their property rights through to something else?

So if I nick your Wii and trade it in for a PSP, you can make a claim against the PSP (by tracing your property rights through the Wii, the selling of the Wii and the resulting proceeds going into the PSP)?
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Tufts
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(Original post by King Hippo)
Do you mean when someone can trace their property rights through to something else?

So if I nick your Wii and trade it in for a PSP, you can make a claim against the PSP (by tracing your property rights through the Wii, the selling of the Wii and the resulting proceeds going into the PSP)?
Aye but it's much more complex than that. There's different tests that apply to different types of scenario such as Clayton's case "first in, first out" rule and the "cherry picking" rule, etc.

I need someone to discuss the details with me.
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King Hippo
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Well, if nobody else is biting, tell me about it then. What's the "cherry picking" rule? Is that something to do with being able to pick cherries off a tree if they're hanging over the fence? :p:
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kalokagathia
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(Original post by Tufts)
Aye but it's much more complex than that. There's different tests that apply to different types of scenario such as Clayton's case "first in, first out" rule and the "cherry picking" rule, etc.

I need someone to discuss the details with me.
Your reference bible should be Lionel Smith's The Law of Tracing (1997). For an excellent concise summary, see Lord Millet's judgement in Foskett v McKeown (the relevant bits replicated below).

In the words of Lord Millet, in a couple of sentences:

"Tracing is... neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property."


"Tracing and following
The process of ascertaining what happened to the plaintiffs' money involves both tracing and following. These are both exercises in locating assets which are or may be taken to represent an asset belonging to the plaintiffs and to which they assert ownership. The processes of following and tracing are, however, distinct. Following is the process of following the same asset as it moves from hand to hand. Tracing is the process of identifying a new asset as the substitute for the old. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner. In practice his choice is often dictated by the circumstances. In the present case the plaintiffs do not seek to follow the money any further once it reached the bank or insurance company, since its identity was lost in the hands of the recipient (which in any case obtained an unassailable title as a bona fide purchaser for value without notice of the plaintiffs' beneficial interest). Instead the plaintiffs have chosen at each stage to trace the money into its proceeds, viz, the debt presently due from the bank to the account holder or the debt prospectively and contingently due from the insurance company to the policy holders.

Having completed this exercise, the plaintiffs claim a continuing beneficial interest in the insurance money. Since this represents the product of Mr Murphy's own money as well as theirs, which Mr Murphy mingled indistinguishably in a single chose in action, they claim a beneficial interest in a proportionate part of the money only. The transmission of a claimant's property rights from one asset to its traceable proceeds is part of our law of property, not of the law of unjust enrichment. There is no "unjust factor" to justify restitution (unless "want of title" be one, which makes the point). The claimant succeeds if at all by virtue of his own title, not to reverse unjust enrichment. Property rights are determined by fixed rules and settled principles. They are not discretionary. They do not depend upon ideas of what is "fair, just and reasonable". Such concepts, which in reality mask decisions of legal policy, have no place in the law of property.

A beneficiary of a trust is entitled to a continuing beneficial interest not merely in the trust property but in its traceable proceeds also, and his interest binds every one who takes the property or its traceable proceeds except a bona fide purchaser for value without notice. In the present case the plaintiffs' beneficial interest plainly bound Mr Murphy, a trustee who wrongfully mixed the trust money with his own and whose every dealing with the money (including the payment of the premiums) was in breach of trust. It similarly binds his successors, the trustees of the children's settlement, who claim no beneficial interest of their own, and Mr Murphy's children, who are volunteers. They gave no value for what they received and derive their interest from Mr Murphy by way of gift.

Tracing
We speak of money at the bank, and of money passing into and out of a bank account. But of course the account holder has no money at the bank. *128 Money paid into a bank account belongs legally and beneficially to the bank and not to the account holder. The bank gives value for it, and it is accordingly not usually possible to make the money itself the subject of an adverse claim. Instead a claimant normally sues the account holder rather than the bank and lays claim to the proceeds of the money in his hands. These consist of the debt or part of the debt due to him from the bank. We speak of tracing money into and out of the account, but there is no money in the account. There is merely a single debt of an amount equal to the final balance standing to the credit of the account holder. No money passes from paying bank to receiving bank or through the clearing system (where the money flows may be in the opposite direction). There is simply a series of debits and credits which are causally and transactionally linked. We also speak of tracing one asset into another, but this too is inaccurate. The original asset still exists in the hands of the new owner, or it may have become untraceable. The claimant claims the new asset because it was acquired in whole or in part with the original asset. What he traces, therefore, is not the physical asset itself but the value inherent in it.

Tracing is thus neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property. Tracing is also distinct from claiming. It identifies the traceable proceeds of the claimant's property. It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim. But it does not affect or establish his claim. That will depend on a number of factors including the nature of his interest in the original asset. He will normally be able to maintain the same claim to the substituted asset as he could have maintained to the original asset. If he held only a security interest in the original asset, he cannot claim more than a security interest in its proceeds. But his claim may also be exposed to potential defences as a result of intervening transactions. Even if the plaintiffs could demonstrate what the bank had done with their money, for example, and could thus identify its traceable proceeds in the hands of the bank, any claim by them to assert ownership of those proceeds would be defeated by the bona fide purchaser defence. The successful completion of a tracing exercise may be preliminary to a personal claim (as in El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717) or a proprietary one, to the enforcement of a legal right (as in Trustees of the Property of F C Jones & Sons v Jones [1997] Ch 159) or an equitable one.

Given its nature, there is nothing inherently legal or equitable about the tracing exercise. There is thus no sense in maintaining different rules for tracing at law and in equity. One set of tracing rules is enough. The existence of two has never formed part of the law in the United States: see Scott on Trusts, 4th ed (1989), section 515, at pp 605-609. There is certainly no logical justification for allowing any distinction between them to produce capricious results in cases of mixed substitutions by insisting on the existence of a fiduciary relationship as a precondition for applying equity's tracing rules. The existence of such a relationship may be relevant to the nature of the claim which the plaintiff can maintain, whether personal or proprietary, but that is a different matter. I agree with the passages which my noble and learned friend, Lord Steyn, has cited from Professor Birks's *129 essay "The Necessity of a Unitary Law of Tracing", and with Dr Lionel Smith's exposition in his comprehensive monograph The Law of Tracing (1997): see particularly pp 120-130, 277-279 and 342-347.

This is not, however, the occasion to explore these matters further, for the present is a straightforward case of a trustee who wrongfully misappropriated trust money, mixed it with his own, and used it to pay for an asset for the benefit of his children. Even on the traditional approach, the equitable tracing rules are available to the plaintiffs. There are only two complicating factors. The first is that the wrongdoer used their money to pay premiums on an equity-linked policy of life assurance on his own life. The nature of the policy should make no difference in principle, though it may complicate the accounting. The second is that he had previously settled the policy for the benefit of his children. This should also make no difference. The claimant's rights cannot depend on whether the wrongdoer gave the policy to his children during his lifetime or left the proceeds to them by his will; or if during his lifetime whether he did so before or after he had recourse to the claimant's money to pay the premiums. The order of events does not affect the fact that the children are not contributors but volunteers who have received the gift of an asset paid for in part with misappropriated trust moneys.

The cause of action
As I have already pointed out, the plaintiffs seek to vindicate their property rights, not to reverse unjust enrichment. The correct classification of the plaintiffs' cause of action may appear to be academic, but it has important consequences. The two causes of action have different requirements and may attract different defences.

A plaintiff who brings an action in unjust enrichment must show that the defendant has been enriched at the plaintiff's expense, for he cannot have been unjustly enriched if he has not been enriched at all. But the plaintiff is not concerned to show that the defendant is in receipt of property belonging beneficially to the plaintiff or its traceable proceeds. The fact that the beneficial ownership of the property has passed to the defendant provides no defence; indeed, it is usually the very fact which founds the claim. Conversely, a plaintiff who brings an action like the present must show that the defendant is in receipt of property which belongs beneficially to him or its traceable proceeds, but he need not show that the defendant has been enriched by its receipt. He may, for example, have paid full value for the property, but he is still required to disgorge it if he received it with notice of the plaintiff's interest.

Furthermore, a claim in unjust enrichment is subject to a change of position defence, which usually operates by reducing or extinguishing the element of enrichment. An action like the present is subject to the bona fide purchaser for value defence, which operates to clear the defendant's title.

The tracing rules
The insurance policy in the present case is a very sophisticated financial instrument. Tracing into the rights conferred by such an instrument raises a number of important issues. It is therefore desirable to set out the basic principles before turning to deal with the particular problems to which policies of life assurance give rise.

The simplest case is where a trustee wrongfully misappropriates trust property and uses it exclusively to acquire other property for his own benefit. In such a case the beneficiary is entitled at his option either to assert his beneficial ownership of the proceeds or to bring a personal claim against the trustee for breach of trust and enforce an equitable lien or charge on the proceeds to secure restoration of the trust fund. He will normally exercise the option in the way most advantageous to himself. If the traceable proceeds have increased in value and are worth more than the original asset, he will assert his beneficial ownership and obtain the profit for himself. There is nothing unfair in this. The trustee cannot be permitted to keep any profit resulting from his misappropriation for himself, and his donees cannot obtain a better title than their donor. If the traceable proceeds are worth less than the original asset, it does not usually matter how the beneficiary exercises his option. He will take the whole of the proceeds on either basis. This is why it is not possible to identify the basis on which the claim succeeded in some of the cases.

Both remedies are proprietary and depend on successfully tracing the trust property into its proceeds. A beneficiary's claim against a trustee for breach of trust is a personal claim. It does not entitle him to priority over the trustee's general creditors unless he can trace the trust property into its product and establish a proprietary interest in the proceeds. If the beneficiary is unable to trace the trust property into its proceeds, he still has a personal claim against the trustee, but his claim will be unsecured. The beneficiary's proprietary claims to the trust property or its traceable proceeds can be maintained against the wrongdoer and anyone who derives title from him except a bona fide purchaser for value without notice of the breach of trust. The same rules apply even where there have been numerous successive transactions, so long as the tracing exercise is successful and no bona fide purchaser for value without notice has intervened.

A more complicated case is where there is a mixed substitution. This occurs where the trust money represents only part of the cost of acquiring the new asset. As James Barr Ames pointed out in "Following Misappropriated Property into its Product" (1906) 19 HarvLRev 511, consistency requires that, if a trustee buys property partly with his own money and partly with trust money, the beneficiary should have the option of taking a proportionate part of the new property or a lien upon it, as may be most for his advantage. In principle it should not matter (and it has never previously been suggested that it does) whether the trustee mixes the trust money with his own and buys the new asset with the mixed fund or makes separate payments of the purchase price (whether simultaneously or sequentially) out of the different funds. In every case the value formerly inherent in the trust property has become located within the value inherent in the new asset.

The rule, and its rationale, were stated by Samuel Williston in "The Right to Follow Trust Property when Confused with other Property" (1888) 2 HarvLRev 28, 29:

"If the trust fund is traceable as having furnished in part the money with which a certain investment was made, and the proportion it formed of the whole money so invested is known or ascertainable, the cestui que trust should be allowed to regard the acts of the trustee as done for his benefit, in the same way that he would be allowed to if all the money so *131 invested had been his; that is, he should be entitled in equity to an undivided share of the property which the trust money contributed to purchase—such a proportion of the whole as the trust money bore to the whole money invested. The reason in the one case as in the other is that the trustee cannot be allowed to make a profit from the use of the trust money, and if the property which he wrongfully purchased were held subject only to a lien for the amount invested, any appreciation in value would go to the trustee."

If this correctly states the underlying basis of the rule (as I believe it does), then it is impossible to distinguish between the case where mixing precedes the investment and the case where it arises on and in consequence of the investment. It is also impossible to distinguish between the case where the investment is retained by the trustee and the case where it is given away to a gratuitous donee. The donee cannot obtain a better title than his donor, and a donor who is a trustee cannot be allowed to profit from his trust.

In In re Hallett's Estate; Knatchbull v Hallett (1880) 13 ChD 696, 709 Sir George Jessel MR acknowledged that where an asset was acquired exclusively with trust money, the beneficiary could either assert equitable ownership of the asset or enforce a lien or charge over it to recover the trust money. But he appeared to suggest that in the case of a mixed substitution the beneficiary is confined to a lien. Any authority that this dictum might otherwise have is weakened by the fact that Sir George Jessel MR gave no reason for the existence of any such rule, and none is readily apparent. The dictum was plainly obiter, for the fund was deficient and the plaintiff was only claiming a lien. It has usually been cited only to be explained away: see for example In re Tilley's Will Trusts [1967] Ch 1179, 1186, per Ungoed-Thomas J; Burrows, The Law of Restitution (1993), p 368. It was rejected by the High Court of Australia in Scott v Scott (1963) 109 CLR 649: see the passage at pp 661-662 cited by Morritt LJ below [1998] Ch 265, 300-301. It has not been adopted in the United States: see the American Law Institute, Restatement of the Law, Trusts, 2d (1959) at section 202(h). In Primeau v Granfield (1911) 184 F 480, 482 Learned Hand J expressed himself in forthright terms: "On principle there can be no excuse for such a rule."

In my view the time has come to state unequivocally that English law has no such rule. It conflicts with the rule that a trustee must not benefit from his trust. I agree with Burrows that the beneficiary's right to elect to have a proportionate share of a mixed substitution necessarily follows once one accepts, as English law does, (i) that a claimant can trace in equity into a mixed fund and (ii) that he can trace unmixed money into its proceeds and assert ownership of the proceeds.

Accordingly, I would state the basic rule as follows. 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. It does not matter whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset.

Two observations are necessary at this point. First, there is a mixed substitution (with the results already described) whenever the claimant's *132 property has contributed in part only towards the acquisition of the new asset. It is not necessary for the claimant to show in addition that his property has contributed to any increase in the value of the new asset. This is because, as I have already pointed out, this branch of the law is concerned with vindicating rights of property and not with reversing unjust enrichment. Secondly, the beneficiary's right to claim a lien is available only against a wrongdoer and those deriving title under him otherwise than for value. It is not available against competing contributors who are innocent of any wrongdoing. The tracing rules are not the result of any presumption or principle peculiar to equity. They correspond to the common law rules for following into physical mixtures (though the consequences may not be identical). Common to both is the principle that the interests of the wrongdoer who was responsible for the mixing and those who derive title under him otherwise than for value are subordinated to those of innocent contributors. As against the wrongdoer and his successors, the beneficiary is entitled to locate his contribution in any part of the mixture and to subordinate their claims to share in the mixture until his own contribution has been satisfied. This has the effect of giving the beneficiary a lien for his contribution if the mixture is deficient.

Innocent contributors, however, must be treated equally inter se. Where the beneficiary's claim is in competition with the claims of other innocent contributors, there is no basis upon which any of the claims can be subordinated to any of the others. Where the fund is deficient, the beneficiary is not entitled to enforce a lien for his contributions; all must share rateably in the fund.

The primary rule in regard to a mixed fund, therefore, is that gains and losses are borne by the contributors rateably. The beneficiary's right to elect instead to enforce a lien to obtain repayment is an exception to the primary rule, exercisable where the fund is deficient and the claim is made against the wrongdoer and those claiming through him. It is not necessary to consider whether there are any circumstances in which the beneficiary is confined to a lien in cases where the fund is more than sufficient to repay the contributions of all parties. It is sufficient to say that he is not so confined in a case like the present. It is not enough that those defending the claim are innocent of any wrongdoing if they are not themselves contributors but, like the trustees and Mr Murphy's children in the present case, are volunteers who derive title under the wrongdoer otherwise than for value. On ordinary principles such persons are in no better position than the wrongdoer, and are liable to suffer the same subordination of their interests to those of the claimant as the wrongdoer would have been. They certainly cannot do better than the claimant by confining him to a lien and keeping any profit for themselves.

Similar principles apply to following into physical mixtures: see Lupton v White (1808) 15 Ves 432; and Sandeman & Sons v Tyzack and Branfoot Steamship Co Ltd [1913] AC 680, 695 where Lord Moulton said: "If the mixing has arisen from the fault of 'B,' 'A' can claim the goods." There are relatively few cases which deal with the position of the innocent recipient from the wrongdoer, but Jones v De Marchant (1916) 28 DLR 561 may be cited as an example. A husband wrongfully used 18 beaver skins belonging to his wife and used them, together with four skins of his own, to have a fur coat made up which he then gave to his mistress. Unsurprisingly the wife was held entitled to recover the coat. The mistress knew nothing of the true *133 ownership of the skins, but her innocence was held to be immaterial. She was a gratuitous donee and could stand in no better position than the husband. The coat was a new asset manufactured from the skins and not merely the product of intermingling them. The problem could not be solved by a sale of the coat in order to reduce the disputed property to a divisible fund, since (as we shall see) the realisation of an asset does not affect its ownership. It would hardly have been appropriate to require the two ladies to share the coat between them. Accordingly it was an all or nothing case in which the ownership of the coat must be assigned to one or other of the parties. The determinative factor was that the mixing was the act of the wrongdoer through whom the mistress acquired the coat otherwise than for value.

The rule in equity is to the same effect, as Sir William Page Wood V-C observed in Frith v Cartland (1865) 2 H & M 417, 420: "if a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own". This does not, in my opinion, exclude a pro rata division where this is appropriate, as in the case of money and other fungibles like grain, oil or wine. But it is to be observed that a pro rata division is the best that the wrongdoer and his donees can hope for. If a pro rata division is excluded, the beneficiary takes the whole; there is no question of confining him to a lien. Jones v De Marchant 28 DLR 561 is a useful illustration of the principles shared by the common law and equity alike that an innocent recipient who receives misappropriated property by way of gift obtains no better title than his donor, and that if a proportionate sharing is inappropriate the wrongdoer and those who derive title under him take nothing."
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kaisersalsek
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Clayton's rule only applies in the case of bankruptcy
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kalokagathia
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(Original post by kaisersalsek)
Clayton's rule only applies in the case of bankruptcy
This is incorrect. The rule in Clayton's case is a presumption of first in, first out which applies in principle to all current accounts, although a number of recent cases (notably Commerzbank Aktiengesellschaft [2004]) have omitted to apply it for reasons of expediency, and adopted a pari passu allocation instead.
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kalokagathia
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(Original post by kaisersalsek)
Clayton's rule only applies in the case of bankruptcy
And, come to think of it, if you mean that payments to creditors out of a bankrupt's bank account are on a first in, first out basis, that is also incorrect. In bankruptcy, payments to creditors (within their respective tranches) are made pari passu. The rule in Clayton's case has no application.
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Tufts
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You guys are quality

Okay, get your eyes around this, what would you apply?

Tina was the sole trustee of two trusts: the Alpha Trust and the Beta Trust. In January 2005, Tina wrongly sold assets belonging to the Alpha Trust and paid the proceeds of £60,000 into her own bank account, which was £1,000 overdrawn at the time. A month later, Tina paid £5,000 of her own money into the same account. In March, she withdrew £20,000 from the account and used £8,000 to purchase shares in Gamma plc and the other £12,000 to discharge personal debts.

In April, Tina persuaded Quentin, a bank clerk, to allow Tina to cash a cheque drawn on the Beta Trust account. Tina paid the proceeds of the cheque, £20,000, into her personal account. At the end of April, Tina’s account showed a credit balance of £64,000.

Tina withdrew £10,000 from her account in May and purchased a speedboat which she gave to her daughter Sally. Sally was very surprised to receive such a generous gift as she thought her mother was very short of money. Tina then withdrew a further £40,000 in June and gave this to her son Ricky as a contribution towards the purchase of a bungalow.

Tina died shortly afterwards. Both the Gamma plc shares and her son’s bungalow have risen in value, but the speedboat is only worth £5,000. There is £14,000 remaining in Tina’s account.

Discuss.
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kalokagathia
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(Original post by Tufts)
You guys are quality

Okay, get your eyes around this, what would you apply?

Tina was the sole trustee of two trusts: the Alpha Trust and the Beta Trust. In January 2005, Tina wrongly sold assets belonging to the Alpha Trust and paid the proceeds of £60,000 into her own bank account, which was £1,000 overdrawn at the time.
Breach of fiduciary duty enables:
a) personal claim against T for breach of FD
b) tracing in equity, which might give enable proprietary claim (important, since can't trace through a mixture of money at law: Agip (Africa) v Jackson [1990]).

Alpha trust beneficiaries clearly attribute value of trust property into T's account balance of £59,000 on Foskett v McKeown principles.

Overdrawn account flags up question of possibility of backwards tracing for full value of £60,000 [£59,000 from account, £1,000 into extant property purchased with overdraft] (controversial, but in my opinion the result in Chase Manhattan [1981] as interpreted by Lord Browne-Wilkinson in Westdeutsche Landesbank [1996] only makes sense if backwards tracing is permitted).


(Original post by Tufts)
A month later, Tina paid £5,000 of her own money into the same account. In March, she withdrew £20,000 from the account and used £8,000 to purchase shares in Gamma plc and the other £12,000 to discharge personal debts.
Mixture of beneficiaries' and wrongdoer's value: presume everything against a fiduciary in breach (Re Hallett's Estate (1879))

Hence £12,000 which is dissipated in discharging personal debts consists of £5,000 of T's money and £7,000 of beneficiaries'.

Hence now can trace into:
Shares (£8,000), and
Account (£44,000)

(Original post by Tufts)
In April, Tina persuaded Quentin, a bank clerk, to allow Tina to cash a cheque drawn on the Beta Trust account. Tina paid the proceeds of the cheque, £20,000, into her personal account. At the end of April, Tina’s account showed a credit balance of £64,000.
Q / bank liable as an accessory for dishonest assistance (Royal Brunei Airlines etc.)? Perhaps, depends on state of knowledge - was the personal account at the same bank branch as the trust account for example.

In account, Alpha trust can still only trace into £44,000 [not £64,000] (lowest intermediate balance rule)

Beta trust can therefore trace full £20,000


(Original post by Tufts)
Tina withdrew £10,000 from her account in May and purchased a speedboat which she gave to her daughter Sally. Sally was very surprised to receive such a generous gift as she thought her mother was very short of money. Tina then withdrew a further £40,000 in June and gave this to her son Ricky as a contribution towards the purchase of a bungalow.
S personally liable as recipient? Perhaps, depends either on how we treat Lord Nicholls et al's claims re: strict liability or on S's state of knowledge. S isn't bona fide purchaser, so can still trace into speedboat regardless and claim either proportionate co-ownership or equitable lien..

Beneficiaries can trace into bungalow, and claim either proportionate co-ownership or equitable lien.

Beneficiaries can of course elect at time of trial which of the various options for attributing value they will utilise.

(Original post by Tufts)
Tina died shortly afterwards. Both the Gamma plc shares and her son’s bungalow have risen in value, but the speedboat is only worth £5,000. There is £14,000 remaining in Tina’s account.

Discuss.

Best options for proprietary claims:

Alpha:
Trace into entirety of shares (£8,000 + increase in value)
Trace into bungalow and claim proportionate co-ownership (£40,000 + proportion of increase in value)
Trace into account for £4,000 [max which can be claimed because of lowest intermediate balance rule]
(Backwards trace into property purchased with £1,000 overdraft if not disipated)

Hence £52,000 + increases in value (or possibly £53,000 with backwards tracing)

Beta:
Trace into bungalow and claim proportionate co-ownership (£20,000 + proportion of increase in value)


How balance the claims of the two innocents (Alpha and Beta) however? Rule in Clayton's case (assuming the account is a current account and not, eg: a deposit account)? Pari passu? I would suggest that, following the reasoning in Commerzbank Aktiengesellschaft [2004] the latter is preferable, but it is a moot question.


As an example, result if apply rule in Clayton's case:

Alpha:
Trace into entirety of shares (£8,000 + increase in value)
Trace into speedboat (now £5,000)
Trace into bungalow and claim proportionate co-ownership (£34,000 + proportion of increase in value)
(Backwards trace into property purchased with £1,000 overdraft if not disipated)

Hence £47,000 + increases in value (or possibly £48,000 with backwards tracing)

Beta:
Trace into bungalow and claim proportionate co-ownership (£6,000 + proportion of increase in value)
Trace into account for remaining £14,000

Hence get £20,000 + increases in value


Plus don't forget the personal claims also
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kaisersalsek
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(Original post by kalokagathia)
This is incorrect.
Ok, tell that to my tutor/lecturer; I assume your knowledge of equity is far superior than his.
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kalokagathia
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(Original post by kaisersalsek)
Ok, tell that to my tutor/lecturer; I assume your knowledge of equity is far superior than his.
Either you have misunderstood, or your tutor/lecturer is indeed wrong. I suspect the former. Certainly the vast majority of cases involving the rule in Clayton's case will involve a bankruptcy. But that is simply because proprietary claims are have particular value only in cases of insolvency; most of the time, a personal claim will suffice. Stating that the rule in Clayton's case applies only in cases of bankruptcy is, I'm afraid, simply incorrect.

Take a look, for example, at paragraphs 42-50 of Lawrence Collins J's judgement in Commerzbank Aktiengesellschaft v IMB Morgan Plc and Others [2004] for a very clear acknowledgement that the rule has application in cases with no bankruptcy in sight.
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kaisersalsek
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I have not misunderstood, so no need to suspect the former- I was plainly told, since I asked the question "does Clayton's rule only apply in cases of bankruptcy" and he said "yes". Maybe that is about the only case which said that, and he meant the "general rule" is that it's very unlikely to be applied in cases which are not cases of bankruptcy.
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kalokagathia
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(Original post by kaisersalsek)
I have not misunderstood, so no need to suspect the former- I was plainly told, since I asked the question "does Clayton's rule only apply in cases of bankruptcy" and he said "yes". Maybe that is about the only case which said that, and he meant the "general rule" is that it's very unlikely to be applied in cases which are not cases of bankruptcy.
As I said, "it's very unlikely to be applied in cases which are not cases of bankruptcy" because proprietary claims rarely have application outside of an insolvency context. Normally, a simple personal claim will suffice. Likewise equitable liens also rarely have application outside of an insolvency context. But it would of course be utterly absurd to state that an equitable lien applies "only applies in cases of bankruptcy".

If you're looking for another recent example of the rule in Clayton's case being held to have application outside of bankruptcy, look at paras 131-138 of Re Ahmed & Co [2006]
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kalokagathia
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#15
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#15
To settle this definitively, since I think the point is becoming laboured, from Halsbury's Laws of England (via LexisNexis):


958. Account current.
Prima facie, the right of appropriation by the creditor does not arise in the case of an account current, that is to say, where there is one entire account into which all receipts and payments are carried in order of date, so that all sums paid in form one blended fund1. In such a case the presumption is that the first item on the debit side of the account is intended to be discharged or reduced by the first item on the credit side, and that the various items are appropriated in the order in which the receipts and payments are set against each other in the account2.

This presumption, however, may be rebutted by evidence of an agreement to the contrary or of circumstances from which a contrary intention is to be inferred3; and it has no application where the moneys paid to the account are in part the payer's own money and in part moneys held by him as a trustee; in such a case the sums on the debit side are applied in reduction of his own moneys whenever they may have been paid in4. As between two or more beneficiaries under different trusts, however, where the moneys belonging to the trustee personally are not sufficient to satisfy the sums drawn out, the ordinary rule applies5, except where this would be impracticable or injustice would result between creditors6.


1 Field v Carr (1828) 5 Bing 13; Bodenham v Purchas (1818) 2 B & Ald 39; Hooper v Keay (1875) 1 QBD 178.

2 Devaynes v Noble, Clayton's Case (1816) 1 Mer 572 at 608; Bodenham v Purchas (1818) 2 B & Ald 39; Brook v Enderby (1820) 2 Brod & Bing 70; Simson v Ingham (1823) 2 B & C 65; Williams v Rawlinson (1825) 3 Bing 71; Sterndale v Hankinson (1827) 1 Sim 393; Field v Carr (1828) 5 Bing 13; Copland v Toulmin (1840) 7 Cl & Fin 349, HL; Geake v Jackson (1867) 36 LJCP 108; Re Devonport and South Devon Steam Flour Mill Co, Bateman's Case (1873) 42 LJ Ch 577; Hooper v Keay (1875) 1 QBD 178; London and County Banking Co v Ratcliffe (1881) 6 App Cas 722, HL; Re Stenning, Wood v Stenning [1895] 2 Ch 433; Egg v Craig (1903) 89 LT 41; Deeley v Lloyds Bank Ltd [1912] AC 756, HL; Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833, CA; Re Footman Bower & Co Ltd [1961] Ch 443, [1961] 2 All ER 161; Re Yeovil Glove Co Ltd [1965] Ch 148, [1964] 2 All ER 849, CA; Re James R Rutherford & Sons Ltd [1964] 3 All ER 137, [1964] 1 WLR 1211. See also banking vol 3(1) (2005 Reissue) para 183 et seq.

3 Henniker v Wigg (1843) 4 QB 792; City Discount Co Ltd v McLean (1874) LR 9 CP 692, ExCh; Browning v Baldwin (1879) 40 LT 248; Re Hallett's Estate, Knatchbull v Hallett (1880) 13 ChD 696 at 726, CA; The Mecca [1897] AC 286, HL; Re British Red Cross Balkan Fund, British Red Cross Society v Johnson [1914] 2 Ch 419; Re Hodgson's Trusts, Public Trustee v Milne [1919] 2 Ch 189; Westminster Bank Ltd v Cond (1940) 46 Com Cas 60.

4 Re Hallett's Estate, Knatchbull v Hallett (1880) 13 ChD 696, CA; Spartali v Crédit Lyonnais (1885) 2 TLR 178, CA; Re Wreford, Carmichael v Rudkin (1897) 13 TLR 153; and see trusts.

5 Re Hallett's Estate, Knatchbull v Hallett (1880) 13 ChD 696 at 704, CA, per Fry J; Re Stenning, Wood v Stenning [1895] 2 Ch 433; Re Diplock, Diplock v Wintle [1948] Ch 465 at 553, 554, [1948] 2 All ER 318 at 364, CA (affd without reference to this point sub nom Ministry of Health v Simpson [1951] AC 251, [1951] 2 All ER 1137, HL); and see Mutton v Peat [1899] 2 Ch 556 at 560 (revsd on the facts [1900] 2 Ch 79, CA); Favenc v Bennett (1809) 11 East 36.

6 Barlow Clowes International Ltd (in liquidation) v Vaughan [1992] 4 All ER 22, CA.
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