(E) THE FUTURE OF THE TRACING RULES
Although the orthodox approach to the law of tracing treats the tracing rules at Law and Equity as distinct,[1] there are growing calls for their assimilation.[2] Some commentators have asserted that the rules have always been assimilated[3] [4] [5] and there is some indication from the case law that this view is shared by some members of the judiciary.496 497 Although the rules have not yet been formally assimilated, the artificial distinction between the rules at Common Law and Equity should be rejected. A unified approach to tracing is required that incorporates the acceptable features of both regimes.4 7 As Lord Millett emphasized in Foskett v McKeown:[6]
Given its nature, there is nothing inherently legal or equitable about the tracing exercise. There is thus no sense in maintaining different rules of tracing at law and in equity. One set of tracing rules is enough... There is certainly no logical justification for allowing any distinction between them to produce capricious results in cases of mixed substitutions by insisting on the existence of a fiduciary relationship as a precondition for applying equity’s tracing rules. The existence of such a relationship may be relevant to the nature of the claim which the plaintiff can maintain, whether personal or proprietary, but that is a different matter.
If the rules were assimilated, it would follow that, regardless of whether the proprietary base is legal or equitable, the claimant would be able to trace through a mixed fund without needing to establish a fiduciary relationship to do so. But such assimilation of the rules would not collapse proprietary claims at Law and in Equity. It would still be highly relevant that a claim was founded on a legal or an equitable proprietary base, since this would affect the nature of the claim and the nature of the remedy that was available. Assimilation of the tracing rules would not result in the assimilation of the rules on claiming or remedies.[7] For example, if a thief steals your money and deposits it in his bank account, which is already credited with other money, you will have retained legal title to the money. If the tracing rules were not changed, the mixing in the bank account would defeat the claim at Law, since legal title to the mixture would have passed to the thief. If tracing into a mixture were possible at Law, you would still retain legal title to the money in the mixture and would be able to bring a proprietary claim at Law. But the Common Law remedies to vindicate property rights are essentially limited to personal remedies,[8] so you would be able to recover only the value of the money paid plus profits obtained from the investment of that money,501 but, being a personal remedy, if the defendant became insolvent, you would not have priority over any of the other creditors of the defendant. This example shows that, even if the tracing rules were assimilated, in many cases this would be not be of any advantage to the claimant, who would prefer to obtain a proprietary remedy in Equity. There are two possible solutions to this problem. One is to recognize that the claimant who has retained legal title to property can elect to bring an equitable proprietary claim on the basis that the defendant who is in possession of the property holds the possessory title on trust for the claimant. This is artificial, but does at least give the claimant the option of obtaining more advantageous equitable remedies. The alternative solution is to assimilate the remedies that are available to vindicate property rights, so at the very least it would be possible to charge the defendant’s property even though the claim was founded on a legal proprietary right, and maybe even to allow the claimant to recover stolen property or substitute property. This would be a radical reform that goes far beyond the relatively straightforward assimilation of the tracing rules. The assimilation of the claiming rules and the range of available remedies would drastically reduce the need to establish an equitable proprietary base outside of the express trust. But without such assimilation, of claiming, remedies, or even tracing, the equitable rules on proprietary claims remain incredibly important in the commercial world, as recognized by Briggs J in rejecting the view that these rules are old-fashioned, unduly restrictive, and ‘inappropriate for the protection of investors in the modern world’.[9]
- [1] 494 See FOB Babafemi, ‘Tracing Assets: A Case for the Fusion of Common Law and Equity in English Law’
- [2] (1971) 34 MLR 12; RM Goode, ‘The Right to Trace and Its Impact in Commercial Transactions’ (1976) 92 LQR360, 396.
- [3] Smith, The Law of Tracing, 5; Birks, ‘The Necessity of a Unitary Law of Tracing’, 239.
- [4] See especially FoskettvMcKeown [2001] 1 AC 102, 113 (Lord Steyn) and 129 (Lord Millett), both obiterdicta. See also Chief Constable of Kent v V [1983] 1 QB 34, 41 (Lord Denning MR).
- [5] See Nelson v Larholt [1948] 1 KB 339, 342-3 (Denning J); Bristol and West Building Society v Mothew
- [6] [1998] Ch 1, 23 (Millett LJ). 498 [2001] 1 AC 102, 129.
- [7] See RH Maudsley, ‘Proprietary Remedies for the Recovery of Money’ (1959) 75 LQR 234.
- [8] See p 632, below. 501 Trustee of the Property ofFC Jones v Jones [1997] Ch 159.
- [9] Re Lehman Brothers International (Europe) Ltd [2009] EWHC 3228 (Ch), [2010] 2 BCLC 301, [198].
