Tracing, Value and Transactions

AuthorTatiana Cutts
Publication Date01 May 2016
Volume 79 May 2016 No. 3
Tracing, Value and Transactions
Tatiana Cutts
Tracing is generally understood to be the process of following value through one or more
substitutions, by which a claimant ‘transmits’ his claim from the right substituted into its ex-
change product. Understood thus, the exercise of tracing has been made increasingly difficult to
conduct and predict by the development of complex payment mechanisms involving multiple
payment instructions and interceding periods of indebtedness. This article argues that concepts
of value are conceptually and practically misleading. Identifying and determining the content
of transactions are normative processes that depend, not upon identifying the precise mecha-
nisms by which a particular change in legal relations is sought and executed, but rather upon
the manifested intentions of the transacting parties. This allows us to deal straightforwardly
with complex payment structures, clearing and credit, and to focus instead upon the role of
transactions in the justification for a resulting claim.
A simple idea unites contemporary tracing theory across the common law
world: when we trace we follow a continuous thread – value – from one right
to another, which we do by identifying one or more ‘transactional links’.1
Tracing’s ‘central case’ is thus a straightforward one: if T, who holds title to a
£10 note on trust for B, buys with it a bottle of wine, value moves from title
to the note to title to the wine, so that any claims B had to the former are
transmitted to the latter.
This insistence that there is some directness, a continuous thread that, be-
cause it is ‘in the very nature of things’,2can be established independently of
Lecturer in Law, University of Birmingham. I am very grateful, with the usual disclaimer, to Jamie
Glister, James Lee, Charles Mitchell, Duncan Sheehan, Lionel Smith, Rob Stevens and Fred Wilmot
Smith for comments on earlier drafts, and to participants at the Obligations VII Conference for
comments on the version presented in July 2014 at the University of Hong Kong.
1 See, for example, Kwai Hung Realty Co Ltd vYip Fung Sheung [1997] HKEC 683; Foskett v
McKeown [2001] 1 AC 102; Waxman vWaxman [2002] CarswellOnt 3047, [2002] OTC 443;
Grant vSt Marie 2005 CarswellAlta 71, 2005 ABQB 35, [2005] AWLD1355; Hillig vDarkinjung
Pty Ltd [2006] NSWSC 1217 Pacific Electric Wire & Cable Co Ltd vTexan Management Ltd [2008]
4 HKLRD 349; CY Foundation Group vCheng Chee Tock [2012] 1 HKLRD 532; Eaton vLDC
Finance Limited [2012] NZHC 1105 and Wee Chiaw Sek Anna vNg Li-Ann Genevieve [2013]
SGCA 36.
2 C. Hare, ‘Tracing Value and the Value of Tracing’ (2013) 24 JBFLP 249, 266.
C2016 The Author.The Moder n Law Review C2016 The Modern Law Review Limited. (2016) 79(3) MLR 381–405
Published by John Wiley& Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
Tracing, Value and Transactions
intention, has however made it increasingly difficult to apply principles of trac-
ing to modern payment mechanisms; a party who wishes to trace through mul-
tiple intermediate accounts is typically required to evidence a series of ‘direct’
substitutions, linking debits to credits in an unbroken chain,3and judges have
often, but not invariably, concluded that the process is automatically thwarted
if money is paid into an overdrawn bank account4or clearing system.5The
exercise is thus inextricably bound up with the particular manner in which
a payment is executed, a variable that is almost always entirely outwith the
claimant’s control.
In this article I argue that the idea of ‘tracing value’ is both conceptually
and practically misleading. The content of a transaction cannot be determined
without reference to the intention of the parties, deduced from the agreement
as a whole. If this process reveals that the parties intended several steps to work
together, the transaction is to be characterised accordingly. This allows us to
ignore the interposition of intermediate payment instructions, clearing and
credit, and to focus instead on the role of transactions in the claims that result
from their proof.
The purpose of this article is not, therefore, to provide a positive account for
which our monolithic law of tracing can simply be substituted, but rather to
demonstrate that those problems which have occupied centre stage in tracing
discourse are illusory, and to direct attention instead to the issues that ar ise
once value metaphors are removed. In so doing, it becomes manifest that
there are important differences between the various fact-patterns currently
described by reference to principles of tracing. Rather than attempting to
follow the path of value from one asset to another, we are instead faced with
the task of determining the normative role of a transaction entered into by
an agent without the consent of his principal;6a transaction entered into by a
trustee or other fiduciary without the capacity to change the claimant’s position
with respect to some third party;7a transaction executed by a non-fiduciary
wrongdoer8and a transaction entered into by an innocent party, with whom
the claimant had no prior relationship.9The purpose of this article is to equip
us to see and start that task.
3Relfo vVarsani [2014] EWCA Civ 360.
4Conlan vConnolly [2011] WASC 160; CY Foundation Group vCheng Chee Tock n1above;Rea
vRussell [2012] NZCA 536.
5Agip (Africa) Ltd vJackso n [1991] Ch 547; El Ajou vDollar Land Holdings [1993] 3 All ER 717;
Nimmo vWestpac Banking Corp [1993] 3 NZLR 218; Bank Tejarat vHong Kong and Shanghai
Banking Corp (CI) Ltd [1995] 1 Lloyds Rep 239; Citadel General Assurance Co vLloyds Bank
Canada [1997] 3 SCR 805; Equiticorp Industries Group Ltd vThe Crown (No 47) [1998] 2 NZLR
481; Bank of America vArnell [1999] Lloyds Rep Bank 399; London Allied Holdings vLee [2007]
EWHC 2061; BMP Global Distribution Inc vBank of Nova Scotia [2009] 1 SCR 504.
6 For example, Relfo vVarsani [2014] EWCA Civ 360.
7 For example, Tay l o r vPlumer (1816) 3 M & S 562, 105 ER 721; Foskett vMcKeown [2001] 1 AC
102; Independent Trustee Services vGP Noble Trustees [2012] EWCA Civ 195.
8 For example, Banque Belge pour l’Etranger vHambrouck [1921] 1 KB 321; Shalson vRusso [2005]
Ch 281.
9 For example, Jones vTrustee of FC Jones & Sons [1997] Ch 159.
382 C2016 The Author. The Modern Law Review C2016 The Modern Law Review Limited.
(2016) 79(3) MLR 381–405

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