The testator and M were co-trustees under a will. Trust monies were later paid into the testator’s own bank account which contained some of his own money. He used some money from the account first to purchase shares and subsequently dissipated the rest of the monies in the account. The testator died insolvent and the shares were subsequently sold. The question arose as to whether the beneficiaries were entitled to trace into the proceeds of the sale of shares. The court held that it was, saying that the rule in Re Hallett’s Estate is subject to the principle that until all the trust monies are restored, the beneficiary has a first charge over all the assets purchased with money from the bank account. A straightforward application of Re Hallett’s would have meant that T’s own money was used to buy the shares and the beneficiary’s money was dissipated.
Joyce J: It is a well established principle that “whatever alteration of form any property may undergo, the true owner is entitled to seize it in its new shape if he can prove the identity of the original material”. However where “the quality of the articles that are mixed be uniform, and the original quantities known, as in the case of so many pounds of trust money mixed with so many pounds of the trustee's own money, the person by whose act the confusion took place is still entitled to claim his proper quantity, but subject to the quantity of the other proprietor being first made good out of the whole mass.” Hence if a fiduciary holds P’s money in his account, puts his own money in and then withdraws some, he can’t later say that following Re Hallett’s Estate it is his [the fiduciary’s] money which is left. i.e. where the trustee mixes trust property with his own already in the account and then spends some on property and squanders the rest, Hallett’s doesn’t apply- the beneficiary has a charge over the mixed fund.