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(ii) Equitable Charge

An alternative remedy to the recovery of particular property or the award of a proportionate share is to impose a charge on the property to secure repayment of the amount that the defendant owes to the claimant. This gives the claimant a power to sell the relevant asset to which the charge is attached and so recover the value received and retained by the defendant plus interest,23 but no more. The claimant also has a security interest that gives the claimant priority over the defendant’s other unsecured creditors should the defendant become insolvent.

Where the claimant’s money has been used to acquire property, it is appropriate for the claimant to be able to recover that property where the claimant contributed all of the value to its acquisition, or to have a proportionate share in it where the claimant contributed some of the value. As has already been seen, even in cases involving acquisition of property the claimant may elect to have a charge over the property. Where, however, the claimant’s contribution has been used only to improve or maintain property that is already in the defendant’s possession rather than to acquire it, it will not be appropriate for the claimant to acquire a beneficial interest in the property so that he or she can benefit from any increase in its value. Consequently, where the value contributed by the claimant is used to improve or maintain the property, the court will treat the property as charged with a sum that represents the value of the claimant’s contribution.24 This applies whether the defendant is a fiduciary or an innocent volunteer, although in the latter case the charge will be imposed only where it would not be unfair to the defendant,25 which is why no charge was awarded on the improved building of the Heritage Craft School in Re Diplock’s Estate.[1] [2] [3] [4] [5]

The function of the equitable charge as a remedy to vindicate property rights was considered in Foskett v McKeown. The key issue in that case was whether the appropriate remedy should be a charge over the proceeds of the policy to enable the beneficiaries to recover the money that had been misappropriated, or whether they were entitled to a proportion of the proceeds calculated by reference to the amount of their money that was used to pay the premiums. The Court of Appeal27 had concluded that a charge was the appropriate remedy, by analogy with cases in which trust money has been used to improve or maintain an asset. This is consistent with the nature of the life insurance policy in that case, since the death benefit would have been due even if the fourth and fifth premiums had not been paid; those premiums therefore did not contribute to the acquisition of the death benefit, but maintained the policy, so that additional units were purchased that would be available in future years. The majority in the House of Lords preferred the analogy with a trustee who has mixed trust money with his or her own money in a bank account, which has then been used to obtain another asset.28 In such cases, awarding a proportionate share remedy is appropriate and so that remedy was awarded in this case.

This is consistent with the attribution approach to tracing, since the death benefit was analysed as being attributable in part to the fourth and fifth premiums that had therefore contributed to the death benefit being obtained.[6]

  • [1] [2014] UKSC 45, [2015] AC 250.
  • [2] See Kali andBurlay v Chawla [2007] EWHC 2357 (Ch), [43] (Judge Hodge QC).
  • [3] Boscawen vBajwa [1996] 1 WLR 328, 335 (Millett LJ).
  • [4] Re Diplock’s Estate [1948] Ch 465, 547; Foskett v McKeown [2001] 1 AC 102, 109 (Lord Browne-Wilkinson).
  • [5] See p 626, above. 27 Foskett v McKeown [1998] Ch 265. 28 Foskett v McKeown [2001] 1 AC 102, 110 (Lord Browne-Wilkinson) and 115 (Lord Hoffmann). LordSteyn did not consider this to be a useful analogy: ibid, 114.
  • [6] See p 610, above.
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