(v) Distinguishing Between Tracing at Common Law and in Equity

The tracing rules are complex essentially because of the fundamental differences between tracing at Common Law and in Equity.³⁸³ Tracing at Law is relevant where the claimant has a legal proprietary base; the equitable tracing rules apply where a claim is founded on an equitable proprietary base. Separate tracing rules developed depending on whether the claim relates to legal or equitable property rights, because the Common Law courts would not recognize equitable rights and the Court of Chancery was not bound to apply the Common Law tracing rules.³⁸⁴ Consequently, that Court ‘developed its own more sophisticated rules of identification and recognized a wider range of proprietary interests which the plaintiff could claim in a substituted asset’.^[1] In fact, this is historically inaccurate, and there is no evidence of distinct tracing rules at Common Law and in Equity until the twentieth century.^[2]

In FHR European Ventures LLP v Cedar Capital Partners LLC^[3] the Supreme Court asserted that Common Law tracing is possible without a proprietary interest. No authority was provided for this obiter dictum, which is inconsistent with fundamental principles underpinning the law of tracing.

As will be seen,^[4] this distinction between tracing at Common Law and in Equity is indefensible. Although some commentators^[5] and judges^[6] have argued that there is no longer any distinction between tracing at Law and in Equity, it is not yet possible to reach such a conclusion, because the distinction has been clearly recognized in a number of authorities.^[7] In Foskett v McKeown, some of the judges called for the unification of the tracing rules at Common Law and in Equity,^[8] but this was clearly obiter since the basic requirements for tracing in Equity were clearly established in that case.

• [1] Ibid.
• [2] The wrong turning appears to have been made by Viscount Haldane in Sinclair v Brougham [1914] AC348, 419-21. See GJ Virgo, ‘Re Hallett’s Estate in C Mitchell and P Mitchell (eds), Landmark Cases in Equity(Oxford: Hart Publishing, 2012), 389.
• [3] [2014] UKSC 45, [2015] AC 250, [44]. 388 See p 628, below.
• [4] 389 See especially Smith, The Law of Tracing, 5, and Khurshid and Matthews, ‘Tracing Confusion'.
• [5] 390 Bristol and West Building Society v Mothew [1998] Ch 1, 23, 716 (Millett LJ).
• [6] 391 Agip (Africa) Ltd v Jackson [1990] Ch 265, 286 (Millett J); [1991] Ch 547, 566 (Fox LJ); ElAjou v DollarLand Holdings plc [1993] 3 All ER 717, 733 (Millett J); Boscawen v Bajwa [1996] 1 WLR 328; Shalson v Russo
• [7] [2005] Ch 281, 314 (Rimer J).
• [8] Foskett v McKeown [2001] 1 AC 102, 113 (Lord Steyn) and 128-9 (Lord Millett). Lord Browne-Wilkinson expressly did not consider this: ibid, 109.