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Topic%204%20-%20Part%203%20-%20Property%20Rights%20%26%20Tracing%20-%20v2

Testator made a residue gift to charities and clause

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Testator made a residue gift to charities and clause struck down as invalid after £250,000 already paid to 139 charitable institutions Is there a proprietary right against the charities? Held the charities were innocent volunteers , so tracing was possible, but it depended on whether there was mixing and if a substituted asset had increased or decreased in value
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26 Findings in  Re Diplock Tracing is available against a third party receiving trust property even though there was no pre-existing fiduciary relationship between that third party and the claimant Where the third party is a volunteer (who takes without notice) and there is no mixing - the volunteer holds the property on trust for the rightful owner but different rules apply Where the moneys have been paid into a mixed bank account, FIFO applied (the rule in Clayton’s case )
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27 Findings in  Re Diplock  cont. Where money is used to buy new asset, beneficiary entitled to a charge to secure repayment If new asset increases in value, beneficiary did not get a share in the proportionate increase If asset has decreased, loss shared proportionately Money used by 3 rd party to upgrade pre- existing asset or pay off unsecured debts treated as dissipated – no right to trace
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28 When does a right to trace end? In 2 situations: 1. A bona fide purchaser halts the process When the asset is purchased by a bona fide purchaser for value without prior notice of the misappropriation tracing ceases 1. If the asset is dissipated When the asset no longer exists i.e. is spent, the ability to trace ends
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29 Tracing and Dissipation If the asset is dissipated the right to trace is lost: The property has ceased to be legally identifiable, but A personal remedy in respect of the misappropriation still exists If the trustee uses the misappropriated funds to discharge a debt he already owes that is regarded as dissipation
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30 Where 2 lots of property have been  mixed Say a trustee misappropriates trust funds from 2 trusts and puts it in a new bank account in his own name The two possibilities will be covered in Trusts Rule in Clayton’s Case first in, first out Other possibility is that the innocent parties share pari passu in proportion to their contribution to mixed fund Either may apply in relation to money, but with other assets we apply the pari passu rule
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31 Overview - reminder Existence of fiduciary relationship Scope Breach Conflicts rule; Profit Rule Defences Remedies against primary wrongdoer Third party liability – KR/KA Tracing
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32 Practical Problem Time to bring these issues alive Prepare revision question 3 from your tute book: Goanna & Kanga A copy is available on Blackboard under class discussion problems
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