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equity wk 12/13, Big point is stating that you acknolwdge existence of…

- - - - Tracing is not a claim, it is the process of identifying property so a proprietary claim can be made: Foskett v McKeown [2000] [2001] 1 AC 102.
  - - - Therefore, equitable tracing requires: Property. There must be a pre-existing equitable interest in the property prior to breach of fiduciary duty, and that property in the hands of another person. at equity it does not matter if this property has become mixed re hallets estate; knatchbull v hallet.
        May require pre-existing fiduciary relationship. But this has been questioned in Australia, may be simply based on proprietary rights: Commonwealth Bank of Australia v Saleh.
  - - - EXCEPTION TO THIS= BACKWARDS TRACING
        
        Backwards tracing is an exception to the idea that money placed in an overdraft account is lost. IF money is placed into an overdraft account, overdraft reduced, money is available to be drawn down, and excess used to purchase an asset. Under backwards tracing, beneficiaries can claim the asset as trust property. Has been applied in England, may be available in Australia: Conlan v Connolly [2011] WASC 160.
        
        Idea is that trustee should not be able to rely on own structuring of overdrafts to defeat beneficiaries claims: Hagan v Waterhouse (1992) 34 NSWLR 308. But – may result in injustice to unsecured creditors, as their claims may be denied where a property interest is found.
  - - - If the property is mixed with the trustee’s own property, the trustee is at fault and more stringent rules apply.
        
        The rule in Hallets case
        
        If funds are placed into an account with the trustee’s own funds, expenditures are presumed to come from the trustee’s funds first. Remaining funds are treated as trust funds. Frith v Cartland.
        the rule in re halletts applies not only to money but also to the mixing of other property as evidenced in Brady V Stapleton.
        
        Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696. Trustee put the proceeds of sale of trust property into own bank account, mixed with his own money. After he died bankrupt, dispute between his creditors and the beneficiaries over the money in the account. Beneficiaries entitled to claim money in the account as expenditures presumed to be personal funds.
        
        Rule in Hallett’s case not limited to money, applies to things purchased with the mixed funds. If multiple assets purchased, beneficiaries can chose a charge against all, or take particular assets in their present form (in specie): Brady v Stapleton (1952) 88 CLR 322
        
        The Lowest Intermedate Balance rule
        
        Rule applies where funds have been mixed and there have been multiple deposits and withdrawals from the same account. Where there is a claim against the account, the claim is limited to the lowest balance in between the date of the mixture of trust funds with other funds and the date of the claim.
        
        BUT -- if trustee deposits new amounts after withdrawing trust money, no presumption of reimbursement: James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62
        
        James roscoe v winder the court only allowed the beneficiaries to claim the lowest balance of $25 even though there was over $300 in the account at one period.
        
        Rule in Hallett’s Case: Purchase of Valuable Assets
        
        If trust funds are mixed with trustees’ own funds, valuable assets are purchased, and then remainder is dissipated, Rule in Hallett’s case does not prevent claim against the asset: Re Oatway [1903] 2 Ch 356. Presumption trustee using own funds first will not apply.
        
        it should be noted that once funds have been traced into the newly acquired property the beneficiaries cannot elect to take total beneficial ownership of the property 999.
        
        nstead the beneficiaries can only assert a lien or charge over the property equal to the value of the trust monies.
        
        The key issue for the beneficiarii will be whether the asset has appreciated or depreciated 37.29.
        
        Property Purchased With Mixed Funds
        
        Beneficiary cannot claim full beneficial ownership of asset as the trustee’s funds also contributed to acquiring the asset.
        
        Beneficiary can elect to: claim a proportionate (not total) share of the value of the asset or enforce a lien or charge against the asset(s) equal to the value of the misappropriated trusts funds. Ie two horses, grey and black – charge on the two horses or on one. Maybe able to take property in specie of the mass, or charge on the mass.
      - If the property is mixed with another trust, both sets of beneficiaries are innocent and law must balance their interests
        
        Identifiable Withdrawals From Multiple Trusts
        
        If there are withdrawals from multiple trusts and it is clear from records/trustees intention that a particular trusts/beneficiary’s share is being withdrawn, can find the money withdrawn belongs to that beneficiary: Re Stillman and Wilson (1956) 15 ABC 68.
        
        Re Magarey Farlam Lawyers Trust Accounts (No 3) (2007) 96 SASR 337. Clerk in a law firm withdrew four million dollars from trust account over 13 years – accounts showed which clients had lost money, money attributed to them
        
        If particular beneficiaries cannot be identified, recovered funds distributed parri passu (see below): Keefe v Law Society of NSW (1998) 44 NSWLR 451.
        
        PARI PASSU
        
        Pari passu (literally) = on equal footing. The trusts are treated equally. Funds in a mixed account can be traced into property in the proportion of their contribution.
        
        For example if $3000 from trust a together with $2000 from trusted be we used to purchase 500 shares of equal value 300 shares would be held in favour of trust A and 200 shares in favour of trust B if there is not enough funds remaining for example if 2000 from trust a were mixed with 1000 from trusted be but only $1000 was left in the account the courts would apply $666.67 to trust a and $333.33 to trust b.
        
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        THE RULE IN CLAYTONS CASE
        
        The rule of pari passu tracing may be displaced where there are ‘running accounts’ with a number of deposits and withdrawals over a period of time. The Rule in Clayton’s Case = “first in, first out”. re global finance group. The trust funds deposited first are presumed to be withdrawn first
        
        $3,000 from trust A is deposited in a bank account. The next day, $2,000 from trust B is deposited into the same account. Then, the next day, the trustee withdraws $3,000 and buys 300 shares. This is presumed to be from Trust A, and Trust A has a claim on the shares, while Trust B has a claim on the remaining funds in the bank account. If funds withdrawn are dissipated, Trust B has no claim on the funds remaining in the account.
        
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        Rolling charge
        
        For example trust funds are paid into the trustees personal account from separate funds held on trust for a B&C. The first deposit is $120 from A's account followed by $60 from b’s account, the trustee then withdraws and dissipates $90 from the account. This is followed by a deposit into the account of $60 from CS account, the trustee then withdraws and dissipates $90 from the account after all the transactions there is a balance of $60 remaining. the first withdrawal by the trustee of $90 would be seen as coming from A and B's fund with the $90 balance at the time being apportioned. thus I would have been entitled to $60 and B $30 at the time. two this was then added $60 of CS money thus the proportion of the account at that time between a B&C were two to one to two respectively thus following the second withdrawal of $90.00 the balance of $60 would be divided as follows $24 to a $12 to be $24 to C.
  - - - the beneficiarii only has personal claim against defaulting trustee akers v samba.
  - - - equity recognises that a beneficiarii retains their property rights over trust property in cases where the trust property is mixed with other property or converted into new property Brady v stapleton. When property is mixed at common law the only right is to damages Puma V sportsman's Australia.
        equitable tracing is an evidential process fosketv mckeown. Because of this judges are free to test the evidence and make reasonable infrences based on commen sense Lawrie v hwang.
        
        Toksoz v Westpac= one does not need to be able to show every link in the chain of accounts from and through which the money passed.
- - - - INFORMED CONSENT
        
        Beneficiaries can consent to conduct that would be a breach of trust, but it must be informed consent. Beneficiaries must be of age and capacity, and if multiple beneficiaries, consent must be by all of them. There must be disclosure of all ‘material facts’ – facts necessary to make a proper judgment about whether to consent. Disclosure must be of all facts that might have affected the decision to consent.
      - Plaintiffs conduct
        
        Maxim of equity: he who seeks equity must do equity. A plaintiff’s conduct may be considered by the court re whether relief will be granted: “Unclean hands” -- plaintiff’s own dishonest conduct in concealing the acts complained of from the tax authorities could be considered: Caratinos v Magafas [2008] NSWCA 304. “Laches” – delay in bringing a claim where the plaintiff knew about the conduct but did not act may be considered: Steeter v Western Areas Exploration (No. 2) (2011) 278 ALR 291. An exclusion clause or directions from the court may also be defences – see week 11.
      - PERSONAL V PROPRIETARY REMEDIES Remedies can be personal (against the trustee) or proprietary (regarding trust property
        
        A personal remedy = a claim that the trustee repay the trust $10,000. If successful, there could be an order that could potentially be enforced against any of the trustee’s assets.
        
        A proprietary remedy = a claim that the shares remain trust property. If successful, there could be an order that the shares are held in constructive trust by the trustee’s spouse.
        
        Different breaches may attract different remedies. Also, if a proprietary claim fails, a personal claim against the trustee may still be available.
        
        REMEDIES AGAINST TRUSTEES
        
        PERSONAL LIABILITY
        
        Two remedies: Equitable compensation for loss & Accounting for profits. These remedies are alternatives. Beneficiaries must chose either compensation or accounting. BUT choice may be made for each breach of trust if there are multiple breaches. Losses can be set off against profits, but only if they apply to the same breach of trust: Contradictors v AG [1999] 2 NZLR 523.
        
        Equitable compensation
        
        Where the breach of trust gives rise to loss, the trustee may be personally liable to compensate the trust. This is called equitable compensation. The trustee must return the trust to the position it would have been in if not for the breach. Equitable compensation is distinct from common law damages. Both provide monetary compensation. Both are focused on restoring the injured party to position they would have been in without the wrong. Equitable compensation is based on stricter principles of liability. Will include increases in market value. Value assessed at date compensation is made (ie the court hearing), not date of loss. May cover gains that would have been made but for the breach (ie wrongfully selling an asset that goes up in value).
        
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        Nature of equitabl compensation
        
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        if cant trace to property then use this compensation
        
        Accounting of profits
        
        testel austrakua v KRG electrics held that Remedy of accounting of profits is available where the trustee (or a fiduciary) has breached duty and profited as a result of that breach. Accounting of profits prevents the trustee from benefitting from wrongdoing. May apply where trustee exploits a business opportunity or otherwise uses information gained as trustee. Trustee will be treated as if acting for the trust, and the profits made will be owed to the trust. There must be a “sufficient connection” between the breach and the profit. Irrelevant that profit could not have been obtained for the trust: Boardman v Phipps [1967] 2 AC 46
        Not mathematical exactness but a reasonable approximation my kind of town v soll.
        casual relationship between the breaches and the profits to assess whether it is sufficient to conform with the policy of the rule to attribute a liability to account for those profits- lifeplan v ancient order of forester
        
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        account of equitable compensation are mutually exclusive remedies one cannot question count of profits an equitable compensation to remedy the same breach of trust Heathcote v Hulme.
        
        If can trace to property use accounts for profits
        
        PROPRIETARY REMEDIES
        
        Constructive Trusts
        
        A constructive trust is imposed by the court, may arise without intention of the parties to create a trust. May be imposed as a remedy for breach of trust. Courts have said that a constructive trust should not be granted if: Other remedies are effective or third parties may be prejudiced: John Alexander’s Clubs Pty Ltd v White City Tennis Club (2010) 241 CLR 1. The trust may force the parties into undesirable long term business relationships: Grimaldi v Chameleon Mining (No 2) (2012) 200 FCR 296. A constructive trust is a proprietary remedy – may be available against the trustee or third party who is in possession of trust property.
        
        Barnes v Addy (1874) 9 Ch APP 244: A third party to the trust becomes a constructive trustee where they 1) act as trustee without authority OR 2) knowingly receive trust property; OR 3) knowingly assist in a breach of trust.
        
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