(ii) Unmixed Funds
It is clearly possible to trace value at Equity into an unmixed fund. So, for example, if a trustee misappropriates trust property, such as shares, which he or she sells and the proceeds of sale are credited to a bank account that has no other money credited to it, the beneficiary will be able to trace into that bank account. Similarly, if a trustee wrongly uses trust money to pay the whole purchase price in respect of a particular asset, the beneficiary can trace into that asset.427
(iii) Mixed Funds
A mixed fund will arise where money in which the claimant has an equitable proprietary interest has become mixed with somebody else’s money. This mixing may be a physical mixing, such as where ?100 of the claimant’s money is put into a bag that already contains ?100 of the defendant’s money. Alternatively, this may be a notional mixing, such as where the claimant’s money is credited to the defendant’s bank account that already has money credited to it. Equity allows tracing into and through a mixed fund, as was recognized by Millett J in El Ajou v Dollar Land Holding:428      
The victims of a fraud can follow[] their money in equity through a bank account where it has been mixed with other moneys because equity treats the money in such accounts as charged with the repayment of their money. If the money in the account subject to the charge is afterwards paid out of the account and into a number of different accounts, the victims can claim a similar charge of each of the recipient accounts. They are not bound to choose between them... Equity’s power to charge a mixed fund with the repayment of trust moneys . . . enables the claimant to follow the money not because it is theirs, but because it is derived from a fund which is treated as if it were subject to a charge in their favour.
Complex rules have developed to balance the interests of the different contributors to the mixed fund. Different rules and presumptions exist depending on whether the claimant’s money has been mixed with that of a fiduciary or of an innocent third party.
(1) Mixing with the Fiduciary’s Money
Where the fiduciary has mixed the claimant’s money with his or her own, either physically or notionally, the onus is on the fiduciary to distinguish the separate assets; to the extent that he or she is unable to do so, they will belong to the claimant. This is because, where a fiduciary wrongly mixes his or her own money with that of the claimant, the fiduciary has created an evidential difficulty as to what has happened to the claimant’s money. In such a case the evidential difficulty will be resolved against the interests of the fiduciary, save where the fiduciary can show otherwise on the balance of probabilities. Whether the fiduciary is able to show this will turn on the facts. An example of a case in which it was held that the trustee had not used the trust fund to purchase an asset was Re Tilley’s Will Trust, in which the trustee had mixed trust funds with her own funds in her bank account and then bought some properties for development. It was held that these properties were not purchased with the trust money that had been credited to her bank account, but from the use of overdraft facilities that were available to her.
A consequence of the general principle relating to the fiduciary’s creation of an evidential difficulty by mixing property is that the claimant is able to rely on one of two alternative presumptions to assist with the tracing exercise. The claimant can rely on whichever presumption is most favourable to him or her.
(a) Fiduciary Spent Own Money First
The first presumption is that the fiduciary spent his or her own money first, so the claimant will be able to trace into the sum remaining in the fund. The significance of this presumption is illustrated by Re Hallett’s Estate,434 in which Hallett, a solicitor, had settled money on trust for himself, his wife, and his children. The trustees of the settlement transferred some of the trust property to Hallett to invest. He did so, but then sold the investments and paid the proceeds to his personal bank account. He had also been given some bonds by a client to look after. He sold those bonds and the proceeds of sale were also credited to his bank account. He made various payments from and to this account. He died insolvent, and the trustees of the settlement and his client brought proprietary claims to the money that was still credited to his bank account. At the date of his death, there were sufficient funds credited to that account to meet the claims of both the trustees and the client, but the crucial question for the Court of Appeal was whether they could both recover in priority to Hallett’s general creditors. This turned on whether the payments that had been made from the account were made with Hallett’s money or that of the claimants. It was held that Hallett, who was in a fiduciary relationship with both the trustees and the client, should be presumed to have drawn his own money out of the account first, so that the money that remained credited to the account could be distributed between the trustees and the client.
(b) Fiduciary Spent the Claimant’s Money First
The alternative presumption is that the fiduciary spent the claimant’s money first. The claimant will want to rely on this presumption where the fiduciary has used money from the mixed fund to purchase an asset and dissipated the remaining amount of the fund; the claimant can trace into the purchased asset by presuming that the fiduciary intended to purchase that asset using the claimant’s money rather than his or her own money.  The operation of this presumption is illustrated by Re Oatway,436 in which the facts were the opposite of those in Re Hallett’s Estate. The trustee in Re Oatway had paid trust money into his bank account that was already credited with his own money. The trustee then withdrew money from the account, which he used to buy shares. The remaining money credited to the bank account was then dissipated. It was held that the beneficiary could trace into the shares, even though, when the shares were purchased, the balance to the credit of the bank account exceeded the value of the shares, so that there would still have been some money credited to the account that could meet the claimant’s claim, before that amount was then dissipated. All of the money credited to the bank account was subject to a charge in favour of the trust, so that any asset purchased with value from the trust was also subject to a charge.
The implication of these dual presumptions is to manipulate the tracing rules to ensure that the interests of the beneficiaries are protected whenever possible. The result is inconsistent with one of the principles recognized in Foskett v McKeown, namely that proprietary rights should be vested at once and should not depend on subsequent events. But, in Re Oatway, whether the claimant could trace into the money that was still credited to the account after the shares were purchased or into the shares themselves depended on events after the share purchase, namely the dissipation of the money credited to the bank account. The approach in Re Oatway is more consistent with the essentially evidential function of the tracing rules, and the principle in Foskett v McKeown to the contrary should be rejected.
(2) Mixing With the Money of an Innocent Third Party (a) General Rule
Where the mixed fund consists of money in which the claimant has an equitable interest and also money from an innocent third party, such as the beneficiary of another trust fund, the general rule is that the money in the mixed fund will be assumed to belong equally to both parties.438 If the third party has mixed the claimant’s money with his or her own, the third party is sometimes called an ‘innocent volunteer’, meaning someone who had not given consideration for the claimant’s property and who had no reason to suspect that somebody else had a proprietary interest in the money. If the third party did know, or had reason to suspect, that somebody else had a proprietary interest in the property, he or she will be treated as a wrongdoer and the tracing rules relating to mixing by fiduciaries will apply.
The essential features of the tracing rules relating to an innocent volunteer were identified by the Court of Appeal in Re Diplock, as follows:
In the case, however, of a volunteer who takes without notice... if there is no question of mixing, he holds the money on behalf of the true owner whose equitable right to the money still persists as against him. On the other hand, if the volunteer mixes the money with money of his own, or receives it mixed from the fiduciary... he must admit the claim of the true owner, but is not precluded from setting up his own claim in respect of the moneys of his own which have been contributed to the mixed fund. The result is that they share pari passu.
Pari passu simply means that the claimant and the innocent volunteer share the fund in proportion to their contribution to it.  So, for example, if the fund consists of ?1,000, with ?250 derived from the claimant and ?750 from the innocent volunteer, they will share the fund, and any increase or decrease in the value of that fund, in the proportion of one to three.
The innocent volunteer may not have mixed the fund, but might receive the fund already mixed. For example, if a trustee of two trust funds, Trust A and Trust B, misappropriates ?250 from Trust A and ?750 from Trust B, and then gives the fund to his daughter, then, as between the beneficiaries of the two trusts, ‘there is no basis upon which any of the claims can be subordinated to any of the others’, so the beneficiaries will share the fund in the proportion of one to three.
(b) The Rule in Clayton’s Case
An exception to this general rule that the claimant and innocent third party rank equally in their claim to the fund arises where the mixing takes place in a current bank account, but not a deposit account, so that the rule in Clayton’s case444 applies, namely that the money that was first paid into the bank account is deemed to be the money that was first paid out of it. So, for example, if a trustee misappropriates ?1,000 from trust fund B and deposits this in his current bank account, which is already credited with ?1,000 that has been misappropriated from trust fund A, but no other money is credited to the account, and the trustee then withdraws and dissipates ?1,000, it will be presumed that it was the money from trust fund A that was taken, because this was the money that was credited to the bank account first. So the beneficiaries of trust fund A will suffer the loss and the beneficiaries of trust fund B will have a restitutionary proprietary claim.
The reason why the rule applies only to current accounts and not deposit accounts is because current accounts are active, so that there may be a large number of transactions involving the account every day, which makes it difficult to establish whose money has been withdrawn from the account.
But the rule in Clayton’s case is only a presumption which and it can be rebutted, for example by proving that the defendant intended to withdraw the claimant’s money from the bank account. The rule will not be applicable where the mixed fund is made up of contributions from the claimant and the fiduciary, simply because a different presumption operates in respect of such a mixed fund, namely the presumption that works best in favour of the claimant and against the fiduciary. So the rule is applicable only where the mixed fund consists of contributions from different trusts or contributions from trust funds and innocent volunteers that have been wrongfully mixed.    
The rule in Clayton’s case will also be inapplicable if it is impracticable or unjust to rely on it.447 448 So, for example, in Barlow Clowes International Ltd v Vaughan448 the rule was not applied because the large number of proprietary claims made the operation of the rule impracticable. A rateable basis of distribution of assets amongst the claimants was adopted instead, so that withdrawals were apportioned according to the amount that had been contributed to the fund. In fact, the ‘rule’ in Clayton’s case is increasingly being treated as an exception to a rule that the money should distributed rateably between the innocent volunteers who contributed to the mixed fund.449 450 In Russell- Cooke Trust Co v Prentis,450 it was recognized that Clayton’s case could be displaced very easily by reference to the counter-intentions of the parties, the justice of the case, or where it could be seen that payments credited to a bank account had not led to payments out chronologically.
The rule is consequently very weak and has been described as apportioning ‘a common misfortune through a test which has no relation whatever to the justice of the case’. It can produce unjust results where, for example, a relatively small number of claimants become entitled to the bulk of the available assets because value misappropriated from them was credited to the bank account more recently. An alternative to the rule is the ‘rolling charge’, which is adopted in the US, whereby each debit to the account containing the mixed fund is attributable to all of the claimants pro rata. But this has been rejected as too complicated, at least in a case in which there are a lot of claimants. Where money is credited to a deposit account, losses following dissipation of money are borne proportionately in relation to the value of the contributions from the innocent volunteers. There is no reason why the same should not now apply to money deposited in current accounts. Clayton’s case itself actually concerned the order of appropriation of payments from an account and was not about tracing, so there is no reason to apply it in respect of proprietary claims. As McConville has convincingly argued, the rule provided a mode of accounting as between a creditor, such as a trustee, and his or her debtor, such as a banker, and is immaterial to the assessment of who is entitled to the value credited to a bank account. Consequently the rule in Clayton’s case should be rejected, and, where the mixed fund is not sufficient to meet the claims of all claimants, the losses should be attributed to all of them in proportion to their contribution.
(c) Third-Party and Fiduciary Contributions
Where the mixed fund comprises, for example, value that is derived from the defaulting fiduciary and two innocent claimants, the claimants will be treated as one party and the value contributed by the fiduciary will be treated according to the usual presumptions relating to fiduciaries, to determine whether the fiduciary is deemed to have withdrawn his or her own money from the fund first. So, if money was withdrawn and was dissipated, this is deemed to have been the fiduciary’s money, but if the money was withdrawn and used to buy an asset, this is deemed to have been the money of the two claimants. If the fiduciary is presumed to have dissipated his or her own money, any remaining value credited to the bank account will be apportioned between the claimants in proportion to their contribution to the mixed fund. Alternatively, if an asset has been purchased from the mixed fund and this is presumed to have been purchased with the claimants’ contributions, they will have an interest in the asset that is proportionate to their contributions. Consequently, any increase or decrease in the value of the asset will be borne rateably between them.
-  See AJ Oakley, ‘The Prerequisites of an Equitable Tracing Claim’ (1975) CLP 64; R Pearce, ‘A TracingPaper’  Conv277, 288.
-  See Westdeutsche Landesbank Girozentrale v Islington LBC  1 WLR 938, 947 (Dillon LJ) and 953(Leggatt LJ). Although this decision was overruled by the House of Lords, nothing was said about this point.See also Grantham, ‘Doctrinal Bases for the Recognition of Proprietary Rights’, 65 and Smith, The Law ofTracing, 123-30.
-   EWHC 911 (Ch). 424 Ibid, . 425 Re Diplock  Ch 465, 530.
-  426 Commissioner of Stamp Duties (Qld) v Livingston  AC 694.
-  427 Re Hallett’s Estate (1880) 13 Ch D 696, 709 (Jessel MR).
-  428 El Ajou v Dollar Land Holding  BCLC 735, 753.
-  Despite using the language of following, Millett J is actually referring to tracing.
-  Lupton v White (1808) 15 Ves Jun 432, 33 ER 817; Re Tilley’s Will Trust  1 Ch 1179, 1183(Ungoed-Thomas J).
-  Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd  EWCA Civ 347,  Ch 453,
-   (Lord Neuberger MR). 432  1 Ch 1179.
-  Re Hallett’s Estate (1880) 13 Ch D 696. 434 Ibid.
-  Re Oatway  2 Ch 356; Re Tilley’s Will Trusts  Ch 1179.
-   2 Ch 3 56. 3 See p 611, above.
-  438 Sinclair v Brougham  AC 398; Re Diplock’s Estate  1 Ch 465, 524.
-  Boscawen v Bajwa  1 WLR 328, 337 (Millett LJ). 2 Re Diplock  Ch 465, 539.
-  441 Sinclair v Brougham  AC 398, 442 (Lord Parker).
-  442 K Hodkinson, ‘Tracing and Mixed Funds’  Conv 135, who also suggests that the innocent
-  volunteer should be awarded an allowance for effort where he or she has enhanced the value of the mixed fund.
-  Foskett v McKeown  1 AC 102, 132 (Lord Millett). 444 (18 1 7) 1 Mer 572.
-  Re Hattett’s Estate (1880) 13 Ch D 696; Re Oatway  2 Ch 356.
-  Barlow Clowes International Ltd v Vaughan  4 All ER 22. See Pennell v Dejjell (1853) 4 De GM &G 372, 43 ER 551.
-  Commerzbank AG v IMB Morgan pic  EWHC 2771 (Ch).
-   4 All ER 22. See also The National Crime Agency v Robb  EWHC 4384 (Ch).
-  Russell-Cooke Trust Co v Prentis  EWHC 2227 (Ch),  2 All ER 478,  (Lindsay J);Commerzbank AG v IMB Morgan plc  EWHC 2771 (Ch),  (Lawrence Collins J).
-   EWHC 2227 (Ch),  2 All ER 478.
-  Re Walter J Schmidt & Co 298 F 314, 316 (1923) (Judge Learned Hand).
-  Barlow Clowes International Ltd v Vaughan  4 All ER 22, 28 (Dillon LJ).
-  DA McConville, ‘Tracing and the Rule in Clayton’s Case’ (1963) 79 LQR 388, 407-8.
-  As has occurred in New Zealand: Re Registered Securities Ltd  1 NZLR 545.
-  Re Diplock’s Estate  Ch 465, 539; Lord Provost of Edinburgh v The Lord Advocate (1879) 4 App Cas