What is Common Law Tracing PDF

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 Common law tracing: you can trace to third parties but only through clean substitutions of property. In other words, you cannot trace property at common law if the property has become mixed with any other property. The claimant must prove that the property to be restored is the same as it was orig...

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Law of Trusts Week 9 Dr Lucy Barnes

Lecture 13: What Is Common Law Tracing What is it: it occurs in situations where C seeks to identify property in the hands of the defendant, in which C has retained proprietary rights.  Common law tracing: you can trace to third parties but only through clean substitutions of property. In other words, you cannot trace property at common law if the property has become mixed with any other property. The claimant must prove that the property to be restored is the same as it was originally, and not been mixed. – Banque Belge v Hambrouck  There must be a clean substitute to trace at common law – Taylor v Plumer [1815] Lipkin Gormon v Karpnale [1991] – 

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Facts: The plaintiffs were a firm of solicitors at which Cass was a partner. Cass was a compulsive gambler and dishonestly obtained money from the firm’s bank account to gamble at the defendant’s club. The casino held some money in a separate bank account for the partner. Issue: Under s.18 Gambling Act 1945 gaming contracts were rendered void. The plaintiffs argued that as a result there was no valuable consideration and the thief could not pass good title to the stolen money under the equitable tracing rules, even if the recipient was an innocent party. To what extent is the money in the account identifiable as trust property. Decision: The gaming contract was void under the 1945 Act and the chips were only a mechanism for facilitating gambling; the gambler did not buy them. Therefore, the club had not given valuable consideration. Under equitable tracing rules, an innocent person receiving stolen money only had to repay the owner if they had not given consideration for it. However, as it would have been unjust to require the defendants to repay money in reliance of which they had changed their position, they only had to repay the net amount lost by Cass, which was £154,695.

Agip (Africa) v Jackson [1992] –    

Facts: Money laundering case Legal Issue: is common law tracing possible where property has changed form, multiple times through different currencies and accounts. Issue: Whether the appellant had been dishonest. Decision: the appeal was dismissed, the company was entitled to trace and recover the money However, as the money was mixed with other funds, it could not be traced in common law, only in equity. Furthermore, the third parties gave no explanation as to how they were involved. Therefore, the Court of Appeal said that it could be inferred from their actions that they were dishonest.

Why are there limitations in common law tracing:  Common law tracing is very fragile, it fails where property becomes unidentifiable or If it is mixed with the other trust property. Criticised as a money launderer’s paradise

Lecture 14: Muddying the waters of common law tracing Should we merge common law tracing with equitable tracing?

Law of Trusts Week 9 Dr Lucy Barnes Millet J – wished to restrict claims for anything other than clean playing substitution to the courts of equity. – Tracing the proceeds of fraud (1991) Pg 85.

Should we instead broaden the scope of common law: - arguments on distrust of equity – Newman RA Equity in the worlds legal systems [1971] pg 15. The jurisdiction of common law tracing appears to have been broadened in the case of FC Jones and Sons v James [1996]. Case Study FC Jones & Sons v Jones [1996] 

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There was a significant development in the scope of common law tracing - the Court of Appeal held that the Official Receiver could use common law tracing to receive money loaned to someone PLUS the profits she made from that loan, on the basis that the money was clearly identifiable in a separate bank account If the claimant is able to establish property was transferred in breach of a fiduciary duty they will be able to use equitable tracing → this allows the claimant to trace through mixed funds; and to take the increase in value of any assets bought with the funds. However, this is also, it appears, available in common law tracing. Legal Question: Did the official receiver have the title to the property, enabling it to recover by tracing into the account of Mrs Jones? If so, did this include an equitable interest in the profit. Issue: common law rules f tracing enable a claim, but this cannot be extended into the profits unless the receiver can demonstrate an equitable interest in the proprietary.

FC Jones appears to have generated a new remedy at common law.

Recording 15: What is equitable tracing What is it: must be some equitable interest as a pre-requisite before equity can entertain a claim (usually breach of fiduciary duties) it is the only means through which a C can trace into mixtures of property.  Stage 1- locate property  Stage 2 – identify an equitable claim over that property. Process of equitable tracing: Traditional rule: there must always be a prior equitable interest or fiduciary relationship. Case study – Boscawen v Bajua [1995] the legal question asks whether abbey national is entitled to trace into the debt with Halifax and claim a right in subrogation to the debt owed to the building society. The issue: how can the express turt in favour of abbey national be recovered? Liabilities of innocent volunteers in equitable tracing: An innocent volunteer is someone who has received the property without having exchanged anything for it. Case study – Re Diplock [1948] The legal question: Could the Claimant trace in the payments made by the Defendant, they haven’t committed an equitable wrong in the legal sense of the term. The issue: The defendants believed this was their property of which they could dispose.

Law of Trusts Week 9 Dr Lucy Barnes

Recording 16: What are the benefits of equitable tracing? Foskett v Mckeown [2000] – a fiduciary relationship. Benefits of equitable tracing:  Agip v Jackson – it allows us to trace into areas in which the common law is incapable. Limits on the right to trace in equity:  Provided by Bishopsgate Investments Management v Homan [1995]

Remedy – tracing is a process not a remedy...