Proprietary Remedies: Against Trustees

[Flash Card 1 of 3]

• proprietary claim / by Bs (equitable owners) / to reclaim property misappropriated by T / equitable proprietary actions / can be brought against any fiduciary
• equitable tracing rules: aid track what has happen to trust property / if money dissipated (no longer represented by an asset) Bs must make personal claim for compensation

Common law & equitable tracing

• M: tracking the asset (when trust property remains in original form) / tracing: if trust property not still in original form Foskett v McKeown
• common law tracing: legal owner of property which has been stolen / equitable tracing: available to those with equitable interest in property or owed fiduciary duties
• common law tracing: cannot trace property if mixed with other money (in account or purchase of new asset) Taylor v Plumer / can only follow physical assets & breaks down if money passed through clearing system (electronic transfers between different banks) Agip v Jackson / can follow cheques (physical asset) Jones & Sons v Jones
• equitable tracing: applies even if property mixed with other funds / transferred electronically or passed through bank clearing system

bits of law

Proprietary Remedies: Against Trustees

[Flash Card 2 of 3]

Equitable proprietary claims & tracing

• clean substitution: T exchanged trust property for another asset / B can assert beneficial ownership of proceeds / or bring personal claim against T for breach of trust & enforce equitable lien or charge on proceeds to restore trust fund / whichever is more advantageous Foskett v McKeown
• T takes £2 000 from trust for B / T purchases painting for £2 000 / if painting worth £1 000: B can sue T in personal action for (£2 000 + interest) & claim charge to force sale of painting & receive proceeds / if painting worth £5 000: B claim painting in proprietary action & recover asset of £5 000 / if T bankrupt: proprietary claims to ownership of painting or charge so priority over unsecured creditors
• mixed assets: equity allows tracing / issue arises what remedy available / if T buys property partly with own money & part trust money / B option taking proportionate part of new property or lien upon it Foskett v McKeown
• T buy house for £100 000 (deposit £10 000 using own money & balance £90 000 from trust) / B could claim proportionate share of house (9/10) / alternatively B could seek lien: secure personal claim for compensation equal to loss caused by breach of trust (£90 000 + interest) & force sale to recover sum / if increased in value: proportionate share / if decreased in value: lien

bits of law

Proprietary Remedies: Against Trustees

[Flash Card 3 of 3]

Equitable proprietary claims & tracing

• special rules / if trust money mixed with T's own funds in bank account / & various withdrawals occur
• T mixed trust money with own bank account / T made various withdrawals from account & money dissipated / which money did withdrawals come from? / T spent own money first & balance remaining in account belonged to trust / based on presumption T acted honestly in spending own money first Re Hallett's Estate
• if withdrawal from mixed account has been invested & further withdrawals dissipated / T cannot use Re Hallett to claim investment purchased with own money & trust money dissipated / T must be debited with all sums dissipated & trust money debited with any sums taken out & invested / order various withdrawals & investments wholly immaterial Re Oatway
• Re Hallett & Re Oatway presume against wrongdoer: if money dissipated as far as possible attributed to T's personal fund
• lowest intermediate balance rule: Bs can only recover trust property insofar as it still exists / if trust money withdrawn & dissipated - trust money is spent / future payments into mixed account cannot be claimed / recoverable: lowest balance in account after trust money was paid in / court will not imply intention to restore trust fund Roscoe v Winder
• lowest intermediate balance rule inconsistent with presumption of honesty (Re Hallett) / consistent with principle tracing allows tracking of claimant's own property only
• obiter: trust can recover property including any increase in value Re Tilley's WT / approach confirmed in Foskett v McKeown

bits of law