TRACING ASSETS: A CASK FOR THE FUSION OF COMMON LAW AND EQUITY IN ENGLISH LAW*

Published date01 January 1971
DOIhttp://doi.org/10.1111/j.1468-2230.1971.tb02309.x
Date01 January 1971
AuthorF. O. B. Babafemi
TRACING ASSETS: A CASE
FOR
THE
FUSION
OF
COMMON LAW AND EQUITY
IN EINGLISH LAW*
THE
relation of common law to equity with regard
to
the tracing of
assets is far
from
being simple. The remedies available for tracing
are, regrettably, still plagued by the continued significance of the
different rules at common law and in equity.
It
is intended in this
paper
to
state, examine and evaluate, as briefly as possible, these
divergences and to propose methods of achieving a reconciliation
between the two branches of the law.
The divergences relate principally to the requirement
of
non-
admixture of money at common law; the requirement
of
a fiduciary
relationship in equity; the rights of bona fide purchasers and, finally,
the rights of innocent volunteers.
A. REQUIREMENTS
OF
NON-ADMIXTURE
AT
COMMON
LAW
AND
OF
FIDUCIARY
RELATIONSHIP
IN
EQUITY
At common law property can be traced
if
it
has remained in its
original state
or
is represented by other property obtained in
its
place by
its
sale
or
exchange. This right, however, ceases
once
there is an admixture of the claimant’s property with that of the
wrongdoer.
As
Lord Ellenborough, in his classic exposition of the
subject, put
it
*:
(‘
It
makes
no
difference in reason
or
law into what other form
different from the original the change may have been made .
.
.
for the product of or substitute for the original thing still follows
the nature of the thing itself, as long as it can be ascertained to
be
such, and the right only ceases when the means of ascertain-
ment fail, which is the case when the subject is turned into
money, and mixed and confounded in
a
general mass of the
same description. The difficulty which arises in such a case is
a
difficulty
of
fact and not of law. . . .”
The consequence to
a
plaintsiff in the case of such an admixture
is
that his claim would have to abate, in
the
event of the wrongdoer’s
insolvency, proportionately with the claim at law
of
other unsecured
creditors of the wrongdoer. Such a result is no doubt curious. Why,
indeed, should the fact of an admixture defeat the plaintiff’s right
*
This Article
is
an
extract from
a
thesis
(Study
of
the Inter-Relationship
of
the Legal and Equitable Proprietary Remedies
in
English Law) which
I
sub-
mitted
as
a
Research Student
of
University College
London
for the Doctor
of
Philosophy Degree.
1
Taglor
v.
Pltcmer
(1815)
RI.
&
S.
562,
575.
12
JAN.
1971
TRACING
ASSETS
13
to trace? Ought the legal remedies to have been so restricted?
These questions will be considered later.2
The above common law limitation would not, however, matter
greatly if better and alternative tracing remedies were available in
equity. Such remedies, which allow tracing into mixed property,
do in fact exist in equity.3 Until
Re Diplock
and indeed until the
first half of this century
it
was thought that the better equitable
remedies were available
to
any claimant. An instructive case is
Banque Belge pour 1’Etranger
v.
Hambroucks
where Hambrouck, by
fraudulent means, obtained money from the plaintiff’s bank, paid
it
into his account with Farrow’s Bank and paid some of this money
to his mistress, a Mlle. Spanoghe, who in turn paid
it
into her
deposit account with her own bank. The plaintiffs claimed that the
sum of
E815
remaining to Mlle. Spanoghe’s credit was their
property. Scrutton
L.J.
decided
O
the case on equitable grounds.
So
far as the common law claim was concerned he considered the
defence that the payment into Hambrouck’s bank and the drawing
out of other money in satisfaction had changed the identity of the
money. Atkin
L.J.,?
however, went further and considered that
the plaintiffs could succeed with either
a
common law
or
equitable
remedy.
The better and alternative equitable remedies have, however,
developed as remedies of limited application,
for
in
1948
the Court
of Appeal in
Re Diplock
laid it down that before a right to trace
can be granted in equity, either there must be
a
fiduciary relation-
ship between the claimant and the defendant who holds the
property,
or,
as a result
of
a
fiduciary relationship between the
claimant and another person through whose hands the property has
previously passed, some equitable proprietary interest must have
become attached to the prop~rty.~ In other words, there must
See pp. 7-10,
post.
In
equity if the recipient has exchanged the claimant‘s property for other
property, the claimant can either take the product (this is the case
of
a
con-
structive trust) or he can have
a
lien on it for the value of his property. But
it
the recipient has mixed ithe claimant$ property with his own
80
that it is
no longer identifiable, the claimant is entitled
to
a
charge on the property
purchased for the amount
of
the trust money laid out in the purchase. See
Re
Hallett
(1879)
13
Ch.D.
696,
709,
per
Sir George Jesse1
M.11,.
Where the
mixed property
has
however increased
in
value,
Re
Tilley’s
Will
Trust
[1967]
2
All
E.R.
303 supports the tiew (at
pp.
30%310)
that khe beneficiary is
entitled
to
share in the profit.
4
[1948]
1
Ch. 465
(C.A.)
6
Ibid.
at
p.
330.
5
[1921]
1
K.B.
321.
7
Ibid.
at pp. 335336.
[I9481
1
Ch. 465.
In
this case
a
‘testator had by his will directed his
executors to apply his residuary estate for such charitabl: institutions or other
charitable or benevolent object or objeotss
in
England
8s
they should in
their absolute discretion think fit. The executors distributed
a
large part
of
the residue among 139 charities before the next-of-kin
of
the testator challenged
the validity
of
the original bequest, which was held
by
the House
of
Lords
to
be invalid. The clsima of the next-of-kin against the executors of their estates
were compiomised but a number of claims (persona.1 and proprietary) were
brought against the charities who were regarded as innocent volunteers.
9
[1948]
1
Ch.
465,
530.

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