(i) Tracing into Pure Substitutes and Products
The Common Law tracing rules are logical but restrictive. The fundamental principle underlying these rules is that the claimant will be able to identify the value of his or her property in the substitutes for that property,[1] as long as the substitute has not become mixed with other property so that it loses its identity.[2] So, to take the simplest case, if the defendant stole the claimant’s car and sold it, the claimant would be able to trace his or her continuing proprietary interest into the proceeds of sale, assuming that they still exist and have not been polluted by irretrievable mixing with any other money. If the defendant used the proceeds of sale to buy another car, without contributing any part of the purchase price him or herself, the claimant could trace into that car and then bring a proprietary restitutionary claim to it. The ability of the claimant to claim the substitute for the original property is called the exchange-product theory.
The logic behind these tracing rules is clear. To the extent that the substitute directly represents the original property there can be no objection to allowing tracing into the substitute. If the claimant’s original property ceases to exist, there will be no choice but to trace the value of the original property into its substitute. For example, if the defendant took the claimant’s car and sold it to a third party who drove the car and crashed it so that it was destroyed, the claimant cannot recover the car, but he or she can instead trace into the substitute, the proceeds of sale, in the hands of the defendant. Where, however, the original property and the proceeds of sale continue to exist, the claimant has a choice as to whether to claim the original property or the proceeds of sale.[3] This is simply a matter for the claimant to decide whether or not to claim the original property or the substitute and has nothing to do with adoption or ratification.[4] If the defendant has exercised skill and labour in effecting a profitable exchange, it is not possible to reflect this in a claim at Law because there is no scope for the award of an allowance. The defendant might, however, be able to bring a claim founded on unjust enrichment, with the ground of restitution being mistake as to the ownership of the property.
