A more recent version of these Tracing Stranger Liability notes – written by Cambridge/Bpp/College Of Law students – is available here.
The following is a more accessble plain text extract of the PDF sample above, taken from our GDL Equity and Trusts Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
Equity & Trusts: Tracing & Liability of Strangers STRUCTURE for an exam question
? Intro o What is tracing?
o Advantages of proprietary claim: o Who are claimants o Requirements for tracing in equity (Diplock)
? (1) fiduciary relationship [[note Millett, Foskett, criticises this requirement]].
? (2) an equitable proprietary interest o Could be unavailable if (Re Diplock):
? (1) dissipation;
? (2) property into hands of equity's darling (bona fide purchaser for value without notice)
? (3) inequitability (Diplock).
? Proprietary tracing
? Claim: o Proprietary, 3 types of remedy: o Equitable Ownership o Equitable Charge (lien) o Subrogation o Personal, against trustee : but might be insolvent. o Personal, against strangers:
? Against innocent volunteer, possibly Re Diplock claim
[CF proprietary claim against an innocent volunteer, above, if hasn't been dissipated]
? Not innocent volunteer:
? Knowing recipient
? Dishonest assistant
Intro?What is tracing, Foskett v McKeown, Lord Millett---a 'process'---
of identifying a new asset as the substitute of the old'. Tracing is the process, not a claim or remedy. Common law tracing, limitations o (1) Won't work if C doesn't have a legal interest in the property to trace o (2) Absence of proprietary remedies o (3) Mixing: inability of common law to trace through mixed funds (Agip v Jackson). Advantages of proprietary claim: o (1) priority creditor status;
1 o (2) can take benefit of any increase in value, can trace into substitute assets; o (3) no technical statutory limitation period (s21(1) Limitation Act 1980). [[although is subject to doctrine of laches, 'delay defeats equity'.
? Who are claimants
?????Requirements for tracing in equity (Re Diplock) o (1) fiduciary relationship;
? eg trustee/B; executor/legatee (like Diplock); solicitor/client (Re Hallett); account/employer (Agip v Jackson); mistaken payment (Chase Manhattan Bank v Israel-British Bank); even thief/victim (Black v Freedman
? [[note Millett, Foskett v McKeown, criticises this requirement: no logical justification for needed fiduciary relationship when not needed for common law tracing; why 2 sets of rules?]].
? Judicial & academic support for unifying equity &
common law rules. o (2) an equitable proprietary interest
? eg under a trust; or of a beneficiary under an estate. Easy to find---Diplock found for next of kin against executors even before estate administered.
? Could be Quistclose trust, Quistclose v Barclays Bank
[[unlikely to come up]]: (1) loan; (2) made solely for a specific purpose; (3) money segregated from borrower's other assets.
? Into whose hands can you trace in equity: o (1) An innocent volunteer (subject to Diplock inequitable defence) [if not dissipated]
o (2) Recipient with knowledge, even if they have provided value o (3) CANNOT trace into Equity's Darling hands---bona fide purchaser for value without notice [[although you could trace into the proceeds of sale given by the Equity's Darling for the property]]. o [[CF, if funds are dissipated---making a personal claim against eg knowing recipient]].
? Limitations, what can defeat equitable proprietary tracing: Could be unavailable if (Re Diplock): o (1) dissipation;
? Diplock egs: dinner; ongoing expenses (eg utility bills); 'aesthetic property improvements' not adding value.
? If used to pay off unsecured debts---dissipation (Diplock).
? Money paid off into overdrawn bank account =
dissipation (Bishopsgate Investment v Homan), form of unsecured d.
2 o (2) property into hands of equity's darling (bona fide purchaser for value without notice). Cannot trace if: (i) received property in good faith; (ii) no knowledge of breach; (iii) provided something of value. [[CF: can trace into innocent volunteer (no value/consideration); and into knowing recipient (knowledge of breach)]]. o 3) Inequitability defence (Diplock): hospital spent money on improving pre-owned property; inequitable to allow a charge on the hospital; would have been enforceable by sale
[[NB: amount claimed was disproportionately low to the value of whole property]].
? NB: is a defence for (1) tracing claim; & (2) subrogation.
? NB, Boscawen v Bajway, Millett LJ, restricts inequity defence: allowing the hospital to escape from proprietary claim is itself an inequity against the legatees who have lost their money; should be confined to circumstances of Diplock---charity using money to improve pre-existing property/pay off mortgage; low claim to value of property ratio; would mean having to sell off property. o + 4---change of position defence can defeat a subrogation claim
TRACING through a bank account Unmixed funds
? C's money paid into wrongdoer's bank account---C has an equitable charge on bank account for the amount of money paid in (Re Hallett's Estate).
? Payments made out of account: C can trace the funds back out of the account and into substitute property. Mixed funds (1) C's property mixed with T's property:
?????(1) Presumption of honesty, Re Hallett's Estate: presumption that T spends own money first; T cannot deny he acted as a good T.
?????(2) Rebutting presumption of honesty where rest of funds dissipated, Re Oatway: can rebut if works against B (shares went up in value, rest dissipated); honest T taken to have acquitted property for trust [[NB: in this case, the rest of the property had been completely dissipated]]
o Turner v Jacob: Oatway rebuttal only applies if there's been complete dissipation of everything else in bank account. [[but note: unusual case, family dispute; hadn't been a deliberate breach of an express trust like Shalson and Hallet--> might have influenced court.
Buy the full version of these notes or essay plans and more in our GDL Equity and Trusts Notes.