Tracing

Introduction

**Tracing** is the process by which a claimant identifies a **new asset as the substitute** for an asset that originally belonged to them, so that the claimant can assert title to that new asset (or to a mixed fund into which it has passed). It is not itself a remedy — it is the **evidential exercise** that supports a proprietary (or sometimes personal) claim. This chapter distinguishes **following** from **tracing**, contrasts **common law tracing** with **equitable tracing**, and works through the key rules for **mixed funds** — the presumptions in **Re Hallett's Estate** and **Re Oatway**, the **first in, first out** rule in **Clayton's Case**, the **lowest intermediate balance** rule in **James Roscoe (Bolton) Ltd v Winder**, and the modern **attribution** approach in **Foskett v McKeown**.

Assessment focus

For SQE1 FLK1 (Trusts) you must be able to **identify the correct tracing route** on a client scenario and **apply the mixing presumptions** to calculate what the claimant can recover. Questions typically describe a trustee misappropriating trust money, converting it into another asset, and/or paying it into a personal or mixed bank account, then ask what the beneficiaries can recover and on what basis. You must know that **common law tracing fails once property is mixed**, that **equitable tracing requires an initial fiduciary relationship and an equitable proprietary interest**, and that against a **wrongdoer** the evidential presumptions are applied **in the claimant's favour** so that the claimant may take a **proportionate share of any increase in value** (Foskett v McKeown) or assert a **charge** over the mixed fund. This is a closed-book assessment — learn the presumptions and citations from memory.

Study tips

1) Distinguish **following** (the same asset into new hands) from **tracing** (identifying a substitute asset). 2) **Common law tracing** works only for the original property or a **clean substitution**; it **fails once the property is mixed**. 3) **Equitable tracing** requires an **equitable proprietary interest** and an **initial fiduciary relationship**, and it **can pass through mixed funds**. 4) Learn the presumptions: **Re Hallett's Estate (1880)** — the wrongdoer is presumed to spend **their own money first**; **Re Oatway [1903]** — where the wrongdoer buys an asset then dissipates the rest, the claimant may treat the asset as bought with **trust money**; **Clayton's Case (1816)** — **FIFO** for a current account, but it is readily displaced (**Barlow Clowes v Vaughan [1992]**). 5) Remember the **lowest intermediate balance** limit (**James Roscoe (Bolton) Ltd v Winder [1915]**) and the **attribution, not causation** principle and **proportionate share of profit** in **Foskett v McKeown [2001] 1 AC 102**.