Barlow Clowes International Ltd v Vaughan 1992 CA B were a financial firm which

Barlow clowes international ltd v vaughan 1992 ca b

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unbroken account and therefore the losses were borne rateably by the charity and the beneficiary of the will. - Barlow Clowes International Ltd v Vaughan [1992] CA - B were a financial firm which went into liquidation - case related to fund in an active bank account from 11,000 different investors - all innocent investors - almost of the money in the fund had been dissipated - if Clayton's Case applied only the most recent investors would have been able to recover. - Court of Appeal - Held that the rule in Clayton's Case (1816) should be disapplied, even in the context of an active bank account, where either it is excluded by contrary intention (express or implied) OR its effects would be impracticable OR would lead to manifest injustice - in such cases, losses are to be borne rateably (i.e. proportionately according to the value of their share of the fund), irrespective of the order in which sums have been deposited and withdrawn - held that rule was disapplied due to the contrary intention of the investors in the fund. - Woolf LJ - “ The rule need only be applied when it is convenient to do so and when its application can be said to do broad justice having regard to the nature of the competing claims.” ILLUSTRATION: Losses Borne Rateably Deposits: Withdrawals: £1,000 (misappropriated from Trust A) £600 withdrawn and dissipated £2,000 (misappropriated from Trust B) Balance remaining : £2,400 - The £600 loss is allocated rateably between Trusts A and B, i.e. in the ratio 1:2. Thus Trust A’s proprietary claim is reduced to £800 and that of the beneficiaries of Trust B to £1,600. Both claims are thus reduced by the same proportion (20%). - Russell-Cooke Trust Co v Prentis [2002] - Clayton's rule was the starting point BUT was a rebuttable presumption which could be disapplied. - North American Rolling Charge - Ordinary rateable loss involves totaling value of each claimant's share and divide remaining amount in proportion to their shares - under the rolling charge, every payment out is allocated proportionately between all the persons who hold a share of the mixed fund at the date of that particular payment - discussed but rejected in Barlow Clowes (1992) CA on basis of lack of English authority to support it. (V) TRACING AFTER THE PAYMENT OF A DEBT - Issue - If A takes B money and discharges a debt owed to C the money passes to C (the creditor) who is a bona fide purchaser - B cannot follow money into hands of B but there is no surviving product in the form of a surviving product now held by A, as they simply discharged a chose in action owed to C = prima facie tracing is impossible BUT 2 possible exceptions: backward tracing and subrogation. - Where the claimant’s money has been spent discharging a pre-existing debt, the prima facie position is that no tracing is possible. Two possible exceptions require consideration. 11
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