Space Investments v Canadian Imperial Bank [1986] 1 WLR 1072

• The bank was the trustee of various settlements which contained a clause permitting the trustee to open and maintain savings accounts with any bank including itself. The bank as trustee deposited trust money with itself as banker and credited it to trust deposit accounts.

• A petition was presented for the winding up of the bank and two liquidators were appointed.

• PC held that when a person deposits money with a bank he gives the bank full legal and beneficial ownership (obviously - otherwise how could a bank lend the money out, etc.).

  • Thus when trust money is deposited with a bank the same happens, so that when the bank went bankrupt the beneficiaries had no rights ahead of other creditors.

  • Therefore since the mixing of trust funds with the trustee’s own monies had been completely lawful and proper, the beneficiaries retained no proprietary interest in the monies (they were general creditors).

  • Tracing was therefore not available to them.

Lord Templeman

• If the mixing had been carried out without such an express authorisation it would have been unlawful

• In such circumstances a beneficiary may ‘to trace the trust money to all the assets of the bank and to recover the trust money by the exercise of an equitable charge over all the assets of the bank’, provided it is practicable to do so.

  • This would be backwards tracing, i.e. where the plaintiff claims the value of property received by the other party before he receives the misappropriated trust property.

  • E.g. Defendant buys property on credit and then pays off his debtors with the misappropriated funds.