04_Tracing - Equity and Trusts 04 Tracing PART IV TRACING I...

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Equity and Trusts 04 – Tracing © Jaani Riordan 2006 Page 1 of 35 http://www.jaani.net/ P ART IV T RACING I Introduction A Definition Tracing is a process for identifying value received by the defendant and establishing a causal connection between that value and the plaintiff. It is, in other words, a method of finding property held by the defendant to which a plaintiff is entitled. Despite often being described as a remedy, tracing is essentially an evidentiary technique, which may in turn give rise to remedies at the suit of the plaintiff. Tracing is simply a precursor to the assertion of their proprietary claim. Stone and McKeough observe that tracing is normally defined by reference to the colourful metaphor of ‘following property into the hands of another’. 1 A more specific description follows: Tracing is the process by which a claimant who has been deprived of property (‘the original property’) seeks to assert legal or equitable title to other property (‘the target property’) because the target property has, in some way, been acquired from exploitation of the original property. The process involves establishing an unbroken chain of transfer and transformation from the original property to the target property. If this process is successful, the claimant can claim property rights in the target property and enlist an appropriate remedy in rem to recover it. Tracing only applies to fungible assets. A fungible asset is a generic right or resource such that any instance of it is as good as any other. For example, money is a fungible asset: in general, any coin or tendered instrument is as valuable as any other equivalent. In Brady v Stapleton (1952), Dixon J made the (controversial) observation that sheep are also a type of fungible property. Further examples include grain, gold, copper, uranium and other resources. Strictly speaking, tracing is only necessary where the plaintiff’s property has been transformed in some way (as by exchanging it for other property). If the defendant simply has possession of the plaintiff’s original property, it is possible to ‘follow’ that property directly to the defendant. If the plaintiff has prior legal or equitable title to that property, he or she will be entitled to it in priority to the defendant as a matter of law. B Equitable Tracing Rules Equitable tracing rules govern the process of tracing. They are broader than their common law equivalents. Collectively, the equitable rules prescribe a method for identifying a chain of title — transactions and transformations — linking plaintiff to defendant, and original property to target property. Simple cases, as where the plaintiff’s money is readily traceable into the defendant’s hands as a discrete unit of value in the same form, do not require complex analysis. Instead, the tracing rules deal with three problems: 1 Margaret Stone and Alistair McKeough, ‘Tracing in the Age of Restitution’ (2003) 26 University of New South Wales Law Journal 377.
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This note was uploaded on 08/17/2010 for the course BUSLAW 730-462 taught by Professor N/a during the Three '10 term at Melbourne Business School.

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04_Tracing - Equity and Trusts 04 Tracing PART IV TRACING I...

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