Tracing, Mixing, and Innocent Claimants
| Published date | 01 May 2021 |
| Author | Jordan English,Mohammud Jaamae Hafeez‐Baig |
| Date | 01 May 2021 |
| DOI | http://doi.org/10.1111/1468-2230.12613 |
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Modern Law Review
DOI:10.1111/1468-2230.12613
Tracing, Mixing, and Innocent Claimants
Jordan English∗and Mohammud Jaamae Hafeez-Baig†
Faced with the problem that arises where multiple innocent claimants have contributed to a
mixed fund that is now insucient to meet all of their claims, English and Australian courts
have suggested three solutions:(i) the rule in Clayton’s Case;(ii) the ‘simple pari passu’ approach;
and (iii) the ‘rolling charge’ or ‘Nor th American’ approach. In Caron vJahani (N o 2) the New
South Wales Court of Appeal adopted a simplied version of the third solution: the ‘simplied
rolling charge’ approach. In doing so, the Court demonstrated that once the rule in Clayton’s
Case is (rightly) discarded, what remains is not simply a binary choice between the second and
third solutions.We argue that English courts should revisit their approach to the problem posed
at the outset by jettisoning the rule in Clayton’s Case and by adopting the simplied rolling
charge approach.
THE PROBLEM
A trustee misappropriates £1,000 from Trust A and £1,000 from Trust B and
deposits the funds consecutively into her (previously empty) personal bank ac-
count. She then dissipates £1,000. The trustee then misappropriates £1,000
from Trust C and adds it to her account. She then dissipates £200, leaving a
balance of £1,800. The trustee is now insolvent. The three beneciaries (A, B,
and C) seek repayment of £1,000 each. But with only £1,800 remaining in
the account, their claims cannot each be satised in full.How is the fund to be
distributed?
The problem illustrated by this example – how limited funds in a bank ac-
count are to be distributed among various persons asserting equitable propri-
etary rights against1the chose in action constituting the trustee’s bank account –
has been described as a ‘classic insolvency conundrum’.2It typically arises where
a person receives money from multiple individuals in circumstances which give
rise to separate trusts in favour of each of them and the amounts are deposited
into a single bank account. The problem is one of tracing and mixing: how
should the law deal with the ‘common misfortune’3that arises where multiple
∗Stipendiary Lecturer in Law, St Hilda’s College, Oxford.
†Barrister, Level Twenty Seven Chambers, Brisbane. We are g rateful to Lionel Smith and Alexander
Georgiou for their comments on an earlier draft of this note.
1 See B. McFarlane and R. Stevens,‘The nature of equitable property’ (2010) 4 Journal of Equity 1.
2Caron and Seidlitz vJahani and McInerney in their capacity as liquidators of Courtenay House Pty Ltd
(in liq) & Courtenay House Capital Trading Group Pty Ltd (in liq) (No 2) [2020] NSWCA 117;
(2020) 382 ALR 158 (Caron vJahani (No 2) or Caron).
3Re Walter J Schmidt & Co 298 298 F 314, (1923), 316.
© 2020 The Authors.The Modern Law Review © 2020 The Modern Law Review Limited.(2021) 84(3) MLR 593–607
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