Law of Equity and Trusts - Exam Revision Notes (Part 6)

Trusts lecture Term 2 week 8. TRACING

Today’s topic is tracing and it follows on from last week’s topic- breach of trust. See supplemental thing in email.

Tracing – how does it fit with what we’ve done so far –when a trustee breaches their trust – number of forms – 1 – in the form of carelessness causes a lost – invests badly and causes loss. Another possibility – boredom and finch – eg.. make a profit and have to account. Another type of breach is to misapply money – pay it away. If a trustee does this, the beneficiary will clearly like to trace the misapplied money and bring it back. English law allows you to bring all of these claims at the same time. Allowed to bring inconsistent claims – can go to the trustee and say you caused me a loss – can also say you’ve gained –bring you to account.. end up with 3 times the .. not allowed double satisfaction.

In practice, bring all these claims and part of it would be to bring an action against trustees company/spouse.. etc. Could combine with injunction to freeze account

Today – misapplication and how you get your wealth back

Focus on direct consequences of misapplication – the sort of trust you find in a solicitors office – classic trusts – handout – worksheet 16. Money is a concept – no one wants a piece of green paper. Distinguish the desire to recover a thing and desire to recover value. If trustee steals car, .. mashes it up – you want misapplied value.

First quote on sheet – tracing properly is a process.

English law is concerned with remedy. It always wants to give a practical remedy. Odd that then to be told that tracing is a process.. it is detective work – where’s my money gone. It is a process. Saying – where has my money gone? Following an asset is different to tracing value. Tracing – eg – selling to someone, become shares... tracing value. Process of accounting. See handout. In the absence of memoranda, evidence, you have presumptions. Golden presumption – it always goes against the wrongdoer. The wrongdoer..When it’s between innocent and wrongdoer, wrongdoer suffers. Eg –is a trustee, has trustee money. Puts it with his money and buys something. Still has enough money to account to you but also an asset. What happens? Shouldn’t have mixed money. If spends money..can say asset is yours. No truth here as to who owns which asset, it is determined in retrospect to ensure innocent always win when there is a conflict with wrongdoer. If asset is rubbish, can take cash from pocket.

See quote on handout. – ‘the modern law is equipped..’ evidential difficulties – it’s just about evidence. Saying there’s no point, when you’re being a detective.. you use whatever tools you can. When its purely procedural – no distinction between law and equity. This dist only comes in when its remedial. This ideal does not exist! He would like to see a world where you can use law / equity - .. can take to court and claim in common law or eq. Why should the process be anything to do with the dist..

Cant go the court neutral, and request an equitable remedy. Court will say  you haven’t gone through equitable process. This is the ideal. So you do the process and then you bring the claim. In reality, the claim has to be in eq or in law. You have to show you went through eq or legal tracing.

Page 2 of worksheet:

‘not because it is the claimants’ – youre nt tracing it because it is your moeny. This is because – not after green note. You want the value. Derived from fund – as if subject to fund – ‘charge’ meaning- to carry, a cargo, smthin loaded onto smthing else. Not claiming moeny. Saying – my trustee had a fund and i have rights over it. Have charge on it.

What youre doing when you trace, cargo – charge..

Recovering property

The tracing leads to an ultimate remedy. Unitary law professor berk? Not got it yet. What youre really claiming –unjust enrichment – meaning:

Distinction between personal

If trustee becomes insolvent and youre teh ben –can you get the money back? Personal obligations. If trustee only owes personal obligation – you only get a fraction back. Trustee becomes insolvent, row of people. E.g. people he owes – mobile phone contract..owe balance for the month. Queue of people. If there is only a personal .. don’t get all the money back – insolvent – don’t have enough money. So don’t want a personal claim- only as good as his personal ability to pay. Want a claim to property. If it’s MY property, as ben of trust-  this is the reason trust works. When trustee becomes insolvent, doesn’t matter

Crucial that you can go to front of queue – want my PROPERTY.

Common law remd

Recovery of a misappropiratesd chapel. Because it’s common law – it’s a tort – personal – about me and you. There is a slide of statue –

Saying – when someone wronglduly interferes with good,s you can get relief – payment of delivery of goods/ relief in damages. They messed with your stuff – give back or compensate for interference. Problem is that it is only personal. It cold be too late, money could spent. :S

Recovery of moent –second one. Action for money had and received. Straigforweard common law action. Knowledge is no defence 0 its nto based on wrong –  you don’t have to prove its your note, need to prove receipt. Lipkin case – solicitor in London who took client moeny and want to playboy club – gambled it away. They went to casino and client said can we have moeny back – casino said – doesn’t seem fair. If we pay back everyting back received – - what about fact he won moeny, free drinks. Can we reduce it? Yes – by paying out winnings they changed their position in good faith. Werenet allowed to do – defences to common law claim – cant say consideration. Gambling services are not consideration. Cant go to casino – had your consideration. Beneficiary  - your money has been spent, we are innocent, no contractual obligation in gamblking.

On slide – lipkin case – objected that how can you show that this gamble lead to..

Slide – there may be no immediate connection between the bets. They may be placed on different occasions..

Ongoing  thing – we get obsessed in law with individual transaction. Here saying, forget all of that. When someone goes to a casino lots of times, runs risk.. can take a holistic retrospective view – can average it out. it is the totality of the bets which yields, by teh laws of chance, the occasional wining bet. It would be inequitable to require casino to pay back.

So this is about - Equity has the capacity to look beyond the particular bet, takes totality into account. Eq normally highly particular, here just and generous.

Some people say – we don’t need a law of trusts, all we need is this money had and received. You received my wealth –

Could be a propriety type remedy – listen.

Simply always about unjust enrichment – youve got somthing and been unjustly enriched. Based on idea that the reason you cant keep extra is because there is unjustice there. German idea –.. not a great theory for English law. This is teh English law-

A ben of a trust has a property right. This is teh reason it is unjust.

Whether or not we should get rid of trusts and eq – replace with restitution – listen. Page two – fosket – hl: the reason people cant keep misapplied trust property  - trust is property.

Equitable remedies –

Why are common law remedies not brilliant? Not mentioned tracing.. so far been ocnerned with rememedies.

Common law rems not good- it is all personal. Which means you have to join the queue. Want an equitable remedy – this acknowledges you can get your property back.

Second half –

Equitable remedies – on the basis that common law remedies are not good, have to join queueu. These let you jump to  front-

Personal remedy that can exist in eq rememdies – against over paid...see handout, in personam – means personal.

Soone leaves money in will, meant to go to a. Executors pay b by accident. A can bring action b.

When executor misapplies – a can bring it against b – re diplock – the wrongful recienpient was a charity – mistake. You do have a personal right in eq to get moeny, have to join q like with all personal rights. It is an eqitable action to recover moeny but is purely personal.s

Property remedies – share

Or lien – another word for charge.

Example – i have a dodgy trustee and my dodgy trustee has taken my trust moenyand mixed with own money and bought an asset. Straightforward choice – can either say – i like your asset but have of thats mine ..i want a share. That can be a good thing. May have bought some excellent land that is worth more.this is a propriety share. Duty to discharge..you have a trust fund –cant just shake off. Listen.

Taken the fund but don’t care about that now.. but i do want to exert a charge i had over it. Charge is still there, moved to new combined asset. Not now hovering over, that i want. No longer content to see where it goes – like this asset. Not longer abstractedly floadting along.. now i by a commitment of will  want half of it :S good – its a share. But if the trustee bought some rubbish land..

Remember – golden rule –presumption in favour of beneficiary.

Alternative- prop lien – propietrar charge- get to the asset and the asset is rubbish. You bought property then property market collapsed, worth less.. do you want to share? Half of the value of the house? Charge is halved. Don’t want to do this. Listen. Either claming a share or a charge over the thing.

Authority – foskett –hl – facts: fraud. The builder took lots of investors money, held it expressly on trust for them to build hosues. He spent it on himself. Part of the expenditure was life insurance, expensive premiums. Killed himself. Family – wealth. They say –they were hovering over the fund – would adopt an insurance policy. remember golden rule. So beneficiary won.

Real value added here – contribution of his life – his death. The law of tracing, .. the thing that mattered here and in the law of trusts is ..

Life was water  on seed that grew. Life a natural thing.

The 10000 was watered became 100 0000 – thast what victims takes away.. see case.

Lord millet: you either take a share or a charge to recover. Here, the family wanted to restrict the claimant to the charge.. millet – not about unjust enrichment, its about property. The deceased misapplied your money, if they then choose to nourish it, it is your tree. Sometimes u want a share, sometimes you want a charge. Can’t have a double satisfaction

4 I’s ---insolvency etc.. see sheet page 3 – these are the strengths of a proprietary claim.. doesn’t matter that the defendant is insolvent..etc listen.

Interest – when you claim property, you can claim it from the moment the property was misapplied. With common law claim, can only get interest from judgement. You cannot have a double satisfaction. Cant claim tree plus interest.. listen.

Injunction – when i get the news  that you stole the acorn, section 37 – can freeze assets. To amke sure acorn stays with you, otherwise would pass and be difficult to find it. These are advantages.

Disadvantages spell FIDE – SEE handout –

1 st – if you bring an eqitable claim, you have to show that equity is interested. Why eq ad not common law? Becayse you ahve to show there was some fiduciary elemnt to this. Equity doesn’t care if ...listen

The courts make it up – they will fidn a fiducirary where trhey need to, case of chase – one big bank pays 2million dollars. Receiving bacnk – this is great. Try to get monet bank –want to trace in equity. No. no trusts. Courts saidf –there was a fidicuary relationship –duty of loyalty to them. Here it was necessary. Equity must be bothered, there must be fiduciary for this. So court finds it.

Volunteer is someone who does not give out consideration. Promise is voluntary –an act of free will.

Hwo does the claimant fare when they come across a recipient who is a volunteer:

Innocent volunteers can get moeny back as long as not changed position in good faith,

Dissipation / destruction ---

Eating or drinking or destroyed. It;s gone, cant have it. Property is vulnerable to destruction.

Equitys darling –

Is the bono fide purchaser, gave considedration. The innocent purchaser.

Its not abot tracing- its the remedy you want.

The tracing process at common law

the common law can only see a car when its stil a car. if the dody trustee sells itr—equity deals with it. Equity looks to substance not to form. Common law understands form. Saying: the common law tracing stops at teh door to the bank. common law cannot cope with change of from but equity can – equity is about substance.

Basic rule – so common law like a stupid dog. Qualification to this -the law does not allow a wrongdoer to get away with this. The wronglder who mixes it – common law cannot trace through but can trace into. Mixed money and buy a house, common law – really confused. Equity steps in – ‘we try value’.

Common law can trace something as long as it maintains its form. Equity can trace through.

The tracing process in equity

Fairytale. Things change form. metamorphoses. Tracing is the process of going through exchanges.

A number of situations must be dist –

5-

1 – re hallet – said where the trustee mixes his money – says the money remaining belongs to ben. You spent my money well ..listen

Reliaty breaks in – if they put money in own bank account and spends everything.. moneys gone.it’s gone. Property can be destroyed. Not your money..cannot trace beyond a nil balance.

The trustee that missaplies your money, buys an asset – if it truns out well – you can claim it because presumption against wrongdoer. This is at top of page 6.

If trustee --- two different trusts mixed together. Half and half – equitable solution. Vaugn and ball,...

Will apply unless current bank account – this is an ongoing bank account..lots of bits of moent coming in. They don’t just stop the time and divide. They go for simple solution.

Number 5 – chairtity – mistaken moeny – the climant can get it off the charity uness the charity ahs changed their position as to good faith