remedies revision.docx

7/28/2019 remedies revision.docx

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Proprietary claims and the liability of third parties

Breach of trust and third parties

Personal and proprietary claims

- Anything the law recognises as property can be subject matter of a proprietary claims both tangibleand intangibles (eg shares, bank accounts, debts)

- Assertion of beneficial ownership is where you claim property is kept on trust for you- But also..- Property can be co-owned so claim beneficial co-ownership- Can assert charge/lien proprietary interest as it is capable of binding transferees of the property and

because it gives priority in bankruptcy

- For proprietary interest need to show subsisting interest (proprietary interest is equitable so will bedefeated by anyone who acquired a legal interest in thos easts for value and without notice of your

interest)

- Claim also extinguished if property destroyed- Tracing ameliorates fragility of proprietary interests- Personal claims assertions of personal rights. Every personal right mirrored by corresponding

obligation so can order to do this eg pay

- Not money claims b/c1. Doesnt need to be an obligation to pay over sum of money2. Money can also be object of proprietary claim (personal claim for money-pay 100,

proprietary claim if 100 destroyed, bona fide purchaser lose it)

- Establishing you had a proprietary claim, at least at some point, is crucial to some personal claimsTracing

- Need to establish proprietary interests- Original trusts assets which have been misapplied will continue to belong (beneficially and in equity)

to B as long as not destroyed and subject to bona fide rule

- Rules of tracing mean can establish interest in assets not originally held in trust- Clean substitutes simplest- Can explain it by saying its about locating value of original trust property - Every time trust asset misapplied B has option to follow it into hands of recipient or trace its value

into property acquired in exchange

- How to show asset Dholds is yours: Show asset once held by T and missaplied Establish interest in sassest that was acquired by T in exchange for original asset

Why traceable substitutes allowed

- Good to know why claims allowed because by knowing what rules are there to do in the first placecan help determine scope and content eg unjust enrichment purpose then rules shoulw reflect

other unjust enrichment rules

- Idea that claims are founded on unjust enrichment if use B money to buy car, if keep it, unjustlyenriched

- But doesnt hold up why if exchange car for shares, can get shares too since cant say unjust enrichment there ( I think you can. Only have car because of B, therefore only have shares because of

B)- But lords rejectedsaid tracing wasnt about unjust enrichment Foskett v McKoewn [2001]


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Or

- Because benefits of beneficial interest is fact that you are the only one who can use that property toaquire new property. So others shouldnt be able to do that so we ensure that only B benefits from

exchanges

- (cant you also argue here that unclear why later substitutes are covered?)Prerequisites to tracing

- Relevant fiduciary relationship- Common law had own rules of tracing that were narrower- So C tried hard to show any fiduciary relationship to take adv of general equitable rules- Courts allowed them to extend ambit of fiduciary relationships where though claims meritorious- Eg Chase Manhattan bank v Israel British Bank [1981] - Position changing- Some say common law and equity rules should be same- Some say are same, courts misinterpreting case law- Also Lord Brown-wilkinson dictum in westdeutche landesbank grozentral v Islington Lonodn

Borough Council [1996]

said thief holds stolen property on constructive trusts for victim allows application ofequitable tracing rules

Odd because thief usually acquires no rights Although Solves problem of victim of theft being in worse position than a B whose property

is misapplied

If view takes hold basically no difference between common law and equity rules Also supports view that pre-existing fiduciary relationship not needed

- Another argumenet: if we allow C to trace into property acquired with their money under lawofresukting trusts evenw hen no fiduciairy relationships why not other contexts too?

Proprietary claims

- Popular to distinguish between rules for following + tracing and claiming- But cases make no distinction- Usually unclear which are identification rules and which are claiming rules- So wont try to keep separate

Following trust property

- Where trust property mixed with innocent partys property entitled to share of moistureproportionate to contribution

- If mixed with wrong-doer some argument that entitled to all- But likelihood that again proportionate though when some lost or withdrawnlikely that can say

that is only taken out of wrong-doer or trustee

- Where physical mistures when innocent contributor split propotionatly, where wrong doercontributer some support that all goes to B but likilehood wond and will also be proportionate

- Where impossible to retuten Bs contribution to finished product cant say original asset exchangedfor another (eg paint on car) so likely that where other property is wrong-doers- entitled to whole

and where other is innocent, split proportionately like in rules of tracing (can imagine loads of

difficulties. Eg where wrong doer property far outweigh in value eg car + paint or how to get value out

of innocent party without making them sell whole good or somehow interfere with their inetrets?)

- BUT practical difficulties meant court didnt adopt this in Borden


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Claims based on tracing

- Clean substations cases easy- Mixed more complicated- Foskett v Mckeown [2001] HL B has choice in how to claim

Claim a share of substitute proportionate to his contribution Do this when substitute rose in value because can get more than put in Lord Millett suggested that B should get all profit, not just proportion of it

Claim charge on the substitute to the value of his contribution Do this when fallen in value because get full amount you put in and dont end up

with proportion of reduced value

Though when value fallen below contribution, entitled only to what value it doesraise though shortfall can be recoverd by a personal claim against the trustee for

breach of trust. I think reason dont always do this is because no point. May as

well bring claim that the most beneficial straight away then say ask for proprotionaand then claim for shorfaalwhy bother.

- When value stay same, doesnt matter- Provides choice in order to prefer B because innocent- But this choice only available where other mixers are wrong-doers when innocent, only

proportionate

- Whether get this choice and so this preferential treatment depends on who contributed to exchange,not who hold property now. So if give it for no value to someone who doesnt know of breach can

still choose because wrongdoers property is the one mixed in it

Tracing in an out of bank accounts

- Can follow the money into hands of bank (likely to fail because bona fide purchase return is promiseto pay back with interest)

- Can trace its value into account holders right to payment from bank- Gets complicated when money withdrawn or transferred from account

Bank account where all contributors are innocent

- First in first out rule- ^ only applies to bank accounts (suggestion that only current accounts too)- Easy and convenient to apply- Unfair results sometimesdepends on fortuitous ordering of deposits and withdrawals- Severe criticism- Seems to be on way out- CA Barlow Clowes International Ltd v Vaghan [1992]

Said it was default rule But sometime wouldnt be applied Rule wont apply where it was the intention of the contributors to the account. so where

intended it to be a common fund (as in this case_

Woolf Jwouldnt apply where impracticable or result in injustice (probably would neverapply then)

Dillon LJ and Leggatt LJ did not go that farbut did say didnt like rule In Russell-Cooke Trust co v Prentis [2002]Lindasy J showed support for Woolfsaying it was

more the exception than the rule


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- 2 alternatives then- Simple pari passu add up total contributions irrespective of when made and deduct losses

proportionately rough justice but simple and less costly CA preferred it in Barlows

- Rolling pari passu at each stage, account treated as a fund in which contributors have a shareproportionate to contributionsWoolfand Legatt in Barlows said it was fairer and more coherent

approach. But can sometimes be too complex and costly- Will usually apply rolling rule when small number of deposits and withdrawals

Bank accounts where one contributor is wrong doer

- Mix of money and withdrawals- If first in first out, could potentially lose all though can get compensation for breach of trust s- Simple pari passu would better but still just give proportion- CA Re Halletts Estate [1880]

Presumption that T spends own money first- Can still result in problemsRe Oatway [1903]

say T mixes, withdraws then bank balance 0 but at some point bought shares which byordering was with his own money- so has shares of value rules above leave B with nothing

B can cherry pick which withdrawals to be his and which the trustees Argued that doesnt give V anything more than a charge against the property so acquired up

to the value of his contribution

But it should follow that he can claim a beneficial interest in that property proportionate tohis contribution

- Last q:- Does ability to cherry pick only come up when re halletts estate woul give unjust result? (example of

there still beinh money in account but also being shares bought which have increased in value)

- Turner v Jacob [2006] 0 Re hallett presumption applies get money- Argument to still be able to cherry pick- some judges support and seems more in keeping with

analogous situation of physical mixtures (how? There there is also likliehood it will be done

proportionatly. Probably only allow to take all when not possible to separate value or too diffiuclteg

paint on carmaybe car increases increases in value because of paint but how much? I suppose

actually wouldnt be thatdifficult to figure out)

- I dont think it would be fair to allow this. Essentially rewarding B for having his trust moneymisappropriated? Why do this? Perhaps could base argument on fact that T may have not been able

to make investments had he not had Bs money. Eg at the time of the investment, used Bs money and

couldnt have made investment later because opportunity would have gone. But this is not the

reasoning here. At it would have to be a very fact specific rule which may not be advisable

- Lowest intermediate balance ruleBs interest effevtively capped at lowest balance of the account inthe period between the deposit of the trust money and date of Bs claim this is the rule that means

ifaccount was overdrawn at any period B will have no proprietary claim at all (does this only apply to

unauthorised overdrafts?) - rule set down in James Roscoe (Bolton) Lts v Winder [1915] and endorsed

by CA in Bishopsgate Investment Management v human [1995]

- Means even if money putin later B still cant claim unles T meant it reconstitute payments butalmost never will

Tracing through payment of a debt

-


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Backwards tracing

- Idea that paying off debt should be end of tracing process- Should be able to trace into property acquired when debt created and was the paid off with trust

money

-

Idea that exchange just delayed because acquire car first and later pay fully when pay off debt andthat that shouldnt matter

- Argument examined in Bishopsgate Investment management Ltd v Homan [1995] No ultimate answer Vinelott J (at first instance) can do it either when

1. debt acquired with intention to pay off with trust money oro BUT why is intention relevant? Tracing not about intention but an exercise

in identifying property

2. Trust money paid in to free up overdraft limit which is then used to acquireproperty

o BUT doesnt seem to be example of backward tracing its another debtbeing taken on and only being taken on because trust money gives that

possibility. But cant say it was an exchange in any way

Dillon J of CA endorsed Vinelott J Leggatt J said impossible Henry LJ agreed with both of above

- Could make argument that every contract for sale is essentially paying off debt (lecture) so technicallyall backward tracing and if backward tracing not allowed, no tracing allowed

- Sometimes seem to have allowed it but without saying it Agip(Africa) Ltd v Jackson [1990]Subrogation

- Ability to acquire creditors right to claim debt from T - 2 distinct advantages for doing this (beyond getting money since technically already had that right)

1. Allows B to bring a claim against a a party where otherwise none would lie trust moneyheld and used by an innocent done to pay off debt (usually no claim against debtor because

not a knowig recipient) (dont understand)

2. Where T or some subsequent recipient uses trust money to pay off debt which is secured bymortgage or charge subrogation allows B to basically get same right the building or banks

held against T as mortgagee B has proprietary claim (with all added benefits of that)(so

what about the bank?)

Tracing and swollen assts theory

- Ability to trace into assets of innocent recipient of trustee money if can show used trust money forsomething he would have bought anyway eg bills, tax

- Because otherwise unjustly enriched- Some judicial support Lord Templemn in Space Investments Ltd v Candian Imperial Bank of Commerce

Trust co (Bahamas) [1986]

- Recently courts have moved away from this again - bishopsgate- Rightly so because why can you do this for innocent recipients but then can if debt paid off by wrong-

doer? Same enrichment. Would have had to pay it off anyway

Trust money spent improving, maintaining or repairing property

- Exchange occurs money for labour


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- Case law unclear about whether can trace into property on which work performed- Foskett v McKeown [2001] Lord Brown Wilkinson - suggested B will have a charge against that

property securing repayment of trust money spent on it

- Irrespective of whether increased value- Where imporves innocent partys property suggestion no claimRe Diplock [1948]

2 lines of reasononing1. Money may have not added any value so money generates no traceable proceeds

o BUT doesnt explain why cant trace where there is increaseo Argumenty that should get increase, capped at total trust money spent

2. If tracing were possible it would be unfair to innocent party to require hms to sell hisproperty to make good Bs claim

o In this case would have been unfair to have to get rid of lando In Boscawen v Bajwa [1996] suggested that should have just delayed

requirement to pay until innocent had chance to do it

o Foskett v mcKeown endorsed Re Diplockcase though that no proprietaryinterest should be awarded to B where trust money used to improve pr

maintain another innocent persons property if granting such interest would

be unfair.

Change of position

- Defence developed in unjust enrichment claims- Idea that if got money innocently, and spent it on something that you otherwise wou;dnt have

bought, should have to give it back because would leave you out of pocket

- Could have applied it in re diplockcharity made improvements to property that otherwise wouldnthave done

- Even if value increased.- Because would have had to sell land to get the value back which would have prejudiced them- Controversial idea- Foskett v Mckeown seems to have rejected it because rejected idea that claims based on tracing were

founded on unjust enrichment

- but Millett K has said extra-judicially that he did not intend to shut door to developedmnt of changeof position defence in these cases

- so statuts unclearknowing receipt

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remedies revision.docx