The plaintiff was the trustee of some pension schemes out of which monies had been improperly withdrawn. These monies were paid into the bank account of one of then Maxwell companies, which became insolvent. The bank account subsequently became overdrawn. The liquidators of the plaintiff sought to trace into this bank account. CA held that equitable tracing cannot be pursued through an overdrawn and therefore non-existent fund, nor can misappropriated money be traced into an asset bought before the money was received by the purchaser.
Leggatt LJ: ‘there can be no equitable remedy against an asset acquired before misappropriation of money takes place, since ex hypothesi it cannot be followed into something which existed and so had been acquired before the money was received and therefore without its aid’. The remarks of Lord Templeman were simply obiter dicta.
Dillon LJ: He was prepared to envisage the possibility of tracing funds through an overdrawn account where misappropriated funds are paid into the account in order to reduce the overdraft and so to make finance available within the overdraft limits for the purchase of some particular asset => provided that the link between the reduction of the overdraft and this subsequent purchase can be genuinely established, there seems no reason why this limited modification of the basic rule should not be adopted.
Henry LJ: He simply agreed, not stating whose view he found preferable. Therefore there is no clear principle emerging from this case.