Tracing Continued: Mixing, Substitution and Competing Claimants
5.1 Following and tracing
Following tracks the same asset as it changes hands. Tracing identifies value when the original asset is exchanged for another. A bank transfer, share purchase or property acquisition can therefore require tracing rather than following. The student should state this distinction because it clarifies why a substitute asset can still represent the claimant’s value.
5.2 Mixed funds and presumptions
A wrongdoer cannot ordinarily defeat a proprietary claim simply by mixing trust money with personal funds. Re Hallett and Re Oatway demonstrate complementary protections. The presumptions are tools for working out what value is represented in a mixed account or purchased asset; they are not invitations for the wrongdoer to choose whichever assumption benefits the wrongdoer.
5.3 Dissipation
If trust money is spent on ordinary consumption and no substitute asset remains, the proprietary chain may end. The claimant may still have personal claims against the trustee/fiduciary or accessories. The exam distinction is therefore between “can the property be traced?” and “does another cause of action survive even though tracing fails?”
5.4 Appreciation and the claimant’s election
Where trust value contributes to the purchase of an asset that later appreciates, equity may permit a claimant to assert a proportionate beneficial interest or a lien/charge depending on the circumstances. Foskett v McKeown is influential in explaining that tracing is based on property rights rather than judicial discretion about fairness.
5.5 Competing innocent claimants
A particularly difficult problem occurs when multiple innocent claimants contributed to a mixed fund that is insufficient to satisfy everyone. The traditional first-in-first-out rule in Clayton’s Case has been criticised. The course-listed English and Hafeez-Baig article discusses alternative methods, including pari passu and rolling-charge approaches, and the Australian reasoning associated with Caron v Jahani (No 2).
5.6 Strategic remedy choice
Tracing success does not answer whether the claimant should take a proportionate share, lien, charge, account, compensation or another remedy. In insolvency, proprietary relief may be commercially decisive. The lawyer should compare available remedies and choose the one that best protects the client without double recovery.
Exam rule map
- State whether you are following the same asset or tracing into a substitute.
- Separate mixing from dissipation.
- Use Re Hallett and Re Oatway together, not mechanically.
- For appreciation, consider proportionate ownership versus lien/charge.
- For multiple innocent contributors, identify the allocation methodology and authority.
Leading authorities
Classic presumption in mixed-account tracing.
Prevents a wrongdoer from selecting an accounting assumption that leaves the beneficiary with the worthless residue.
Influential modern authority explaining tracing and proportionate proprietary recovery.
Australian appellate authority important to competing innocent claimants and the simplified rolling-charge approach.
Course source spine
- English & Hafeez-Baig, Tracing, Mixing, and Innocent Claimants (2021)
- Trusts Law in Australia, Ong
- Dal Pont, Equity and Trusts in Australia
- Cases and Materials on Equity and Trusts
These sources are teaching/research references. Primary legislation and judgments control where commentary differs.
FAQs — questions
FAQ 1. Does mixing destroy a beneficiary’s proprietary claim?
FAQ 2. What is dissipation?
FAQ 3. Why is Foskett important?
FAQ 4. Why does the English/Hafeez-Baig article matter?
Multiple-choice questions
MCQ 1. If trust money is used to buy shares, the beneficiary is generally attempting to:
MCQ 2. Re Oatway is used to prevent:
MCQ 3. Dissipation means:
MCQ 4. A successful trace automatically determines the final remedy.
Short-answer questions
Short answer 1. Distinguish mixing and dissipation.
Short answer 2. Why can insolvency make tracing strategically important?
Short answer 3. Name three possible responses after tracing succeeds.
High-distinction IRAC problem
A trustee places $100,000 of trust money into a personal account containing $50,000. The trustee then buys shares for $120,000 and later spends the remaining $30,000 on a holiday. The shares rise to $240,000. Advise the beneficiary.