¹ [1993] A.C. 713.

² Lister&Co. v. Stubbs (1890) 45 Ch.D. 1, a decision of the Court of Appeal. The Board also made some observations as to whether the Court of Appeal of New Zealand is in fact bound by decisions of the Court of Appeal.

³ [1994] 3 W.L.R. 199.

⁴ Extra-judicially in (1994) 110 L.Q.R. 238.

⁵ See, for example, the remarks of Atkin, L.J. in Banque Beige pour L'Etranger v. Hambrouck [1921] 1 KB. 321Google Scholar at 345.

⁶ The best discussion of proprietary claims is found in Goff, &Jones, , The Law of Restitution (4th ed., 1993) pp. 73–102.Google Scholar See also Birks, , An Introduction to the Law of Restitution (1989) ch. XI.Google Scholar There is an interesting recent theoretical study by Fitzgerald, B.F.: 13 University of Tasmania Law Review (1994) 116.Google Scholar

⁷ In the case of land, the action for the recovery of land will give the claimant specific recovery of that land. In the case of specific chattels, “the appropriate tortious action will normally only give the claimant damages unless the court exercises any discretion which may be available to grant him specific recovery of the chattel in question. In the case of choses in action or money, the action for money had and received will lead only to the imposition of personal liability. All such claims are presumably now subject to the defence of change of position established by the House of Lords in Lipkin Gorman v. Karpnale [1991] 2 A.C. 548 (see infra, text to footnote 219), as well as to any other defences which may be specifically available depending on the type of property in question.

⁸ Difficulties may arise when chattels are intermingled with other chattels of the same nature so that it cannot precisely be ascertained which belong to the claimant. In these circumstances, it seems that a tortious action will still be available despite the mixing (Jackson v. Anderson (1811) 4 Taunt. 24). Ownership of the intermingled chattels has traditionally depended on whether the mixing was accidental or deliberate. If chattels are mixed accidentally so that they cannot be separated or identified, then the original owners are treated as tenants in common of the whole in proportion to their contributions (Spence, v.Union Marine Insurance Company (1868) L.R. 3 C.P. 427).Google Scholar In the same case at 437–438 it was suggested that, where a person deliberately mixes the property of another with his own, then the whole must be taken to be the property of the other unless and until the mixer unmixes the chattels. However, this rule has now been described as no longer appropriate given the modern and sophisticated methods of measurement (Indian OilCorporation v. Greenstone Shipping Company [1987] 2 Lloyd's Rep. 286).Google Scholar

⁹ Money has no earmark (it is rare for a record to be kept of the numbers of banknotes and there is no way of doing so in the case of coins). Further, since money is the universal medium of exchange, the transferor of money normally makes that money the property of the transferee. However, if a claimant can identify money in the hands of another as belonging to him (as would be the case where bank notes of known serial numbers were stolen and found in the possession of a thief), that money could be recovered by an action for money had and received.

¹⁰ This view has been challenged by S. Khurshid and P. Matthews, (1979) 95 L.Q.R. 78; their argument is convincing historically but is inconsistent with the majority of the authorities cited in the next footnote.

¹¹ Plumer, Taylor v. (1815) 3 M.&S. 562 (draft converted into cash and then into securities and bullion), Re J. Leslie Engineers Company [1976] 1 W.L.R. 292Google Scholar (cheques converted into cash and then into postal orders), Lipkin Gorman v. Karpnale [1991] 2 A.C. 548Google Scholar (chose in action in respect of the credit balance of a bank account converted into cash drawn from the account and then into gaming chips), Banque Beige pour VEtranger v. Hambrouck [1921] 1 K.B. 321Google Scholar (cheques converted into the balance of an account into which no other substantial sums were ever paid, then into cash, and then into another account—the decision to permit tracing through the account into which no other substantial sums were ever paid extended the limits of legal proprietary claims and has been questioned (see per Scrutton L.J., who doubted the availability of a legal proprietary claim, and Khurshid and Matthews, op. cil.)).

¹² Agip (Africa) v. Jackson [1989] 3 W.L.R. 1367, affirmed [1991] 3 W.L.R. 116. Payment into a mixed fund or through an inter-bank clearing system will clearly prevent a legal tracing claim while payment into an unmixed bank account (other than through such a clearing system) will clearly permit such a claim (see Banque Beige pour I'Etranger v. Hambrouck [1921] 1 K.B. 321,Google Scholar discussed in the previous footnote). However, it is not at present entirely clear whether tracing at common law is limited to physical substitutions (where, as in all the cases cited in the previous footnote, cash is withdrawn from one bank account and used to acquire some other asset, including a credit balance in another bank account) or also extends to other forms of transfer, such as an electronic transfer from one bank account to another where the funds have not had to pass through an inter-bank clearing system. In Agip (Africa) v. Jackson at first instance, Milieu J. seems to have restricted legal tracing claims to cases of physical substitution by speaking of the law's inability to follow “streams of electrons; however, in the Court of Appeal Fox L.J., while affirming the judgment of Milieu J., concentrated principally on the clearing system limitation. Most recently of all in Bank Tejerai v. Hong Kong and Shanghai Banking Corp. (CI) (8 June 1994) not yet reported, Tuckey J. reiterated the view of Milieu J. in refusing a claim to trace funds at law through telex instructions. The two first instance decisions must represent English law at present. However, in principle, there seems no reason why an electronic transfer of funds from one account to another within the same bank should cause the funds in question to become unidentifiable and so bar a subsequent legal tracing claim.

¹³ This will be a constructive trust (see the judgment of Sir George Jessel, M.R. in Re Hallett's Estate (1880) 13 Ch.D. 696Google Scholar) unless the other party is already an express trustee.

¹⁴ Re Hallett's Estate (1880) 13 Ch.D. 696. Considerable problems of priorities can arise as between the beneficiary of the constructive trust and the holders of equitable interests in the trust property created between the time when the conduct giving rise to the imposition of the constructive trust occurred and the time when the trust was actually imposed. See J. Glover, 19 A.B.L.R. (1991) 97. These difficulties will be considered infra, text to footnote 207.

¹⁵ Pennell v. Deffelt (1853) De M.&G. 372.

¹⁶ [1986] 3 All E.R. 75 at 76–77.

¹⁷ (1986) 160 C.L.R. 371 at 379. See also the remarks of Gummow, J. (dissenting) in Stephenson Nominees Ply. v. Official Receiver (1987) 76 A.L.R. 485Google Scholar at 503 (Federal Court of Australia), which were applied by Northrop, J. in Australian Securities Commission v. Melbourne Asset Management Nominees Pty. (1994) 121 A.L.R. 626Google Scholar (Federal Court of Australia).

¹⁸ (1986) 160 C.L.R. 371. The case concerned a deposit of funds with stockbrokers prior to the purchase of shares by an individual who had been told that the time was not then right for the purchase of shares and that in the meantime an investment with the firm was “as safe as a bank”. When the firm became insolvent shortly afterwards, the High Court held that, although there was a fiduciary relationship between the stockbrokers and the investor, the firm had received the money beneficially, not as a trustee; therefore the investor had no equitable proprietary interest in the sums deposited and so was not entitled to compensation from a fidelity fund. (Brennan J. went on to hold (at 396 et seq.) that the contract of loan had in fact been voidable for nondisclosure by the stockbrokers but the investor's assignee had not sought to avoid it; had she done so, she would have reacquired an equitable interest in the funds, subject to questions of priorities.)

¹⁹ In Cohen v. Cohen (1929) 42 C.L.R. 91, a wife was suing her estranged husband for several sums of money which he had received on her behalf; these included the proceeds of sale of some of her chattels which she had authorised him to use to purchase goods for his business and then reimburse her subsequently, the proceeds of sale of her surplus furniture and the proceeds of sale of an insurance claim. Her action was out of time unless it was based on a breach of trust by him. The High Court of Australia held that he had been intended to account to her for the proceeds of sale of the furniture and the proceeds of the insurance claim; the fact that he had not been entitled to mix these sums with his own funds clearly indicated that it had been intended that he become a trustee of them. On the other hand, he had clearly been entitled to mix the proceeds of sale of the chattels with his own funds and so no trust arose in respect of them.

²⁰ Had the husband in Cohen v. Cohen been insolvent, his wife would only have obtained priority over his general creditors in respect of the sums of which he was held to be a trustee if she had been able to identify them according to the rules which will be considered infra in Section IV of this article (text to footnote 137 et seq.).

²¹ It is in fact more appropriate to regard their liability as a personal liability to account in the same manner as a trustee. This was recognised by Millett, J. in Agip (Africa) v. Jackson [1989] 1 W.L.R. 1367.Google Scholar However, the majority of judges have continued to describe such persons as “constructive trustees”.

²² Selangor United Rubber Estates v. Cradock (No. 3) [1968] 1 W.L.R. 155. Claims for “knowing assistance” are normally brought against professional persons whose perceived solvency, normally supported by professional indemnity insurance,.makes them a more attractive target than the third party recipients of the trust property who are not infrequently insolvent by the time any proceedings can be brought.

²³ [1989] 3 W.L.R. 1367 a t 1386.

²⁴ In Re Hallett's Estate (1880) 13 C h . D . 696, the defendant solicitor sold bonds belonging partly to his own marriage settlement and partly to a client and mixed the proceeds with his own funds in a bank account. The beneficiaries of the marriage settlement could clearly point to the existence of a fiduciary relationship but the client was also permitted to trace in equity on the basis that she was the legal and beneficial owner of the property which she had deposited with the defendant. In Banque Beige pour I'Etranger v. Hambrouck [1921] 1 K.B. 321,Google Scholar the defendant had fraudulently obtained £6,000 by drawing cheques on his employers which he paid into his own account with another bank, an account into which no other substantial sums were ever paid. From this account he drew out cash which he paid to his mistress, who in turn paid it into yet another account. The majority of the Court of Appeal held that these funds could be traced at law but Scrutton L.J. held that they could be traced only in equity and the majority stated that, had they not held the plaintiff able to trace at law, they also would have permitted an equitable tracing claim. None of the members of the court stated any requirement for the existence of a fiduciary relationship as a prerequisite to an equitable proprietary claim. There is of course no doubt whatever that a fiduciary relationship could have been found in both cases had this been necessary since both the defaulting solicitor and the fraudulent employee could undoubtedly have been held to be constructive trustees of, respectively, the proceeds of the bonds and the proceeds of the cheques. The significant fact is that none of the judges felt it necessary to look for and find such a relationship.

²⁵ [1948] Ch. 465.

²⁶ [1914] A.C. 398.

²⁷ [1980] 2 W.L.R. 202 at 209.

²⁸ [1948] Ch. 465 at 530.

²⁹ Something which was done in New Zealand in Elders Pastoral v. Bank of New Zealand [1989] 2 N.Z.L.R. 180.Google Scholar

³⁰ As was held in Australia by the High Court in Black v. S. Freeman&Co. [1910] 12 C.L.R. 105Google Scholarper O'Connor, J. at 110. See also Spedding v. Spedding (1913) 30 W.N.(N.S.W) 81.Google Scholar

³¹ [1992] 2 A.C. 548.

³² 32 Sections 339–342 in the case of personal insolvency and sections 238–241 in the case of corporate insolvency (obviously less likely).

³³ If within two years of the bankruptcy, automatically and also if within five years of the bankruptcy unless the beneficiaries can demonstrate that the settlor did not become unable to pay his debts as a result of the disposition of the settled property.

³⁴ Such a settlement was set aside on the different grounds contained in the previous statutory provision (Bankruptcy Act 1914 s. 42) in Re Densham [1975] 1 W.L.R. 1519.

³⁵ [1948] Ch. 465.

³⁶ By the House of Lords in Chichesier Diocesan Fund v. Simpson [1944] A.C. 341.

³⁷ Personal liability to repay the sums distributed was also imposed on the charities and their appeal against this decision was subsequently dismissed by the House of Lords in Ministry of Health v. Simpson [1951] A.C. 251. The charities did not appeal against the imposition of proprietary liability.

³⁸ [1986] 3 All E.R. 75 at 76–77.

³⁹ Dyer v. Dyer (1788) 2 Cox Eq. 92.

⁴⁰ Re Vinogradoff[1935] W.N. 68.

⁴¹ Or either in or into the joint names of another and of the purchaser or transferor.

⁴² Vandervell v. Inland Revenue Commissioners [1967] 2 A.C. 291.Google Scholar

⁴³ The distinction between “presumed” a n d “automatic” resulting trusts was adopted by Megarry, J. in Re Vandervell's Trusts (No. 2) [1974] Ch. 269 at 294,Google Scholar 295. His decision was reversed by the Court of Appeal (ibid.) but n o comment was made on his formulation.

⁴⁴ See supra, text to footnote 38.

⁴⁵ See, for example, the remarks of Viscount Haldane L.C. (with whom Lord Atkinson agreed) in Sinclair v. Brougham [1914] A.C. 398 and of Millett, J. in El Ajou v. Dollar Land Holdings [1993] B.C.L.C. 735 at 753.Google Scholar These authorities will be discussed infra, text to footnote 100.

⁴⁶ Infra, text to footnote 100.

⁴⁷ Save in the case of the so-called constructive trust imposed on anyone who has knowingly assisted in a fraudulent and dishonest disposition of trust property in breach of trust. Such liability does not give rise to any equitable proprietary interest or priority over the general creditors of the socalled constructive trust. It has already been submitted (in footnote 21) that it is more appropriate to regard this liability as a personal liability to account in the same manner as a trustee.

⁴⁸ The normal classification of constructive trusts is of course quite distinct (see Oakley, , Constructive Trusts (2nd ed. 1987) pp. 14–18Google Scholar andCope, , Constructive Trusts (1992) pp. 18–19).Google Scholar

⁴⁹ Either because he was formerly beneficially entitled to the property in question or because in the normal course of events he would have become beneficially entitled to the property but did not do so due to the intervention of the constructive trustee.

⁵⁰ Agip (Africa) v. Jackson [1991] 3 W.L.R. 116.Google Scholar

⁵¹ Where the constructive trustee has acquired property as a result of undue influence (see Barclays Bank v. O'Brien [1993] 3 W.L.R. 786Google Scholar) or criminal conduct (Re K. [1985] 2 W.L.R. 262) or has sought to rely on the absence of the necessary formalities in order to go back on an oral undertaking or agreement (Bannister v. Bannister [1948] W.N. 261, Binions v. Evans [1973] Ch. 359).

⁵² Lloyd's Bank v. Rosset [1991] 1 A.C. 107.Google Scholar

⁵³ Morgan, Wright v. [1926] A.C. 788, Re Thompson's Settlement [1985] 2 All E.R. 720Google Scholar (for a contrasting attitude to cases of this kind, see Holder v. Holder [1968] Ch. 353).

⁵⁴ Deeks, Cook v. [1916] 1 A.C. 554, Industrial Development Consultants v. Cooley [1972] 1 W.L.R. 443.Google Scholar

⁵⁵ Oughtredv. Inland Revenue Commissioners [1960] A.C. 206.Google Scholar

⁵⁶ Attorney-General for Hong Kong v. Reid [1993] A.C. 713.Google Scholar

⁵⁷ Phipps v. Boardman [1967] 2 A.C. 46,Google ScholarRegal (Hastings) v. Gulliver (1942) [1967] 2 A.C. 134.Google Scholar

⁵⁸ [1986] 3 All E.R. 75 at 76–77.

⁵⁹ The imposition of either category of constructive trusts is subject to challenge under Insolvency Act 1986 (discussed supra, text to footnote 32). In Re Densham [1975] 1 W.L.R. 1519, a challenge to a constructive trust under the previous provision (Bankruptcy Act 1914, s. 42) was upheld by Goff J. and a wife was consequently deprived as against her husband's trustee in bankruptcy of the enlarged beneficial interest to which she would otherwise have been entitled in their matrimonial home.

⁶⁰ Principally P.B.H. Birks, op. cit. p. 388 and R.M. Goode, (1987) 103 L.Q.R. 433 at pp. 439–145, Essays on the Law of Restitution (1991), p. 216).

⁶¹ Sir Peter Millett (extra-judicially): [1993] R.L.R. 7, Sir Anthony Mason (extra-judicially): Essays in Equity (1985) 246, Underhill, and Hayton, , Law Relat ing to Trusts and Trustees (14th ed., 1987) p. 305,Google Scholar Goff&Jones, op. cit. p. 657, P.D. Finn, Fiduciary Obligations (1977), para. 513, Meagher, Gummow&Lehane, , Equity Doctrines and Remedies (3rd ed., 1992), pp. 152–157.Google Scholar

⁶² [1993] 3 W.L.R. 1143.

⁶³ (1890) 45 Ch.D. 1. The Court of Appeal held that a bribed fiduciary was not a constructive trustee of the subject matter of the bribe for his principal but was merely obliged to pay over the amount of the bribe to him; their relationship was that of debtor and creditor rather than fiduciary and principal. All the commentators referred to supra in footnotes 60 and 61 agreed that the decision in Lister&Co. v. Stubbs and the many cases in which it had been applied were inconsistent with the line of authorities which establish that all other types of secret profits (see Williams v. Barton [1927] 2 Ch. 9); their disagreement was as to which of the two lines of authority was correctly decided.

⁶⁴ The Privy Council made some observations as to whether the Court of Appeal of New Zealand is in fact bound by decisions of the Court of Appeal.

⁶⁵ [1992]2N.Z.L.R. 385.

⁶⁶ See [1994] C.L.J. 31.

⁶⁷ [1993] 3 W.L.R. 1143 at 1151.

⁶⁸ [1974] 1 N.S.W.L.R. 443.

⁶⁹ (1975) 132C.L.R. 373.

⁷⁰ (1986) 160C.L.R. 371 at 379.

⁷¹ The case actually concerned a deposit of funds with stockbrokers prior to the purchase of shares by an individual who had been told that the time was not then right for the purchase of shares and that in the meantime an investment with the firm was “as safe as a bank”. When the firm became insolvent shortly afterwards, the High Court held that, although there was a fiduciary relationship between the stockbrokers and the investor, the firm had received the money beneficially, not as a trustee; therefore the investor had no equitable proprietary interest in the sums deposited and so was not entitled to compensation from a fidelity fund.

⁷² Sir Anthony Mason (extra-judicially): Essays on Equity (1985) 246, P.D. Finn; oop. cit., para. 513, Meagher, Gummow&Lehane, op. cit., pp. 152–157, and the other Australian textbook writers have all vehemently criticised the decision in Lister&Co. v. Stubbs.

⁷³ [1994] 3 W.L.R. 199.

⁷⁴ (1984) 156C.L.R.41.

⁷⁵ [1983] 2 N.S.W.L.R. 157.

⁷⁶ 76 Mason J., having held that the defendant was under a limited fiduciary duty, obviously dissented. Deane J., who had agreed that the defendant was not subject to any fiduciary obligations, also dissented on the basis that the defendant could nevertheless have been held liable as a constructive trustee “in accordance with the principle under which a constructive trust may be imposed as the appropriate form of equitable relief in circumstances where a person could not in good conscience retain for himself a benefit, or the proceeds of a benefit, which he has appropriated to himself in breach of his contractual or other legal or equitable obligations to another” ((1984) 156 C.L.R. 41 at 125. His Honour deferred “until some subsequent occasion a more precise identification of the principles governing the imposition of a constructive trust in such circumstances” (ibid); although such occasions have undoubtedly presented themselves, most notably in Muschinski v. Dodds (1986) 160 C.L.R. 583Google Scholar, a more precise identification of this extremely broad and potentially unwieldy principle has yet to be made and it is to be hoped that his Honour's reticence continues indefinitely.

⁷⁷ (1984) 156C.L.R. 41 at 70.

⁷⁸ (1985) 157C.L.R. 1.

⁷⁹ 79 In (1994) 110 L.Q.R. 238.

⁸⁰ Ibid.,

⁸¹ Ibid. at pp. 245–246.

⁸² [1993] 1 N.Z.L.R. 257.

⁸³ [1994] 3 W.L.R. 199.

⁸⁴ Cooke P. and Gault J. (McKay J. dissented).

⁸⁵ [1895] 2 Q.B. 539 at 545.

⁸⁶ [1927] 1 Ch. 606 at 634 et seq..

⁸⁷ [1994]3W.L.R. 199 at 216.

⁸⁸ (1995) 128A.L.R. 201.

⁸⁹ The statement of claim had also sought a declaration that the defendant held his shares in the joint venture companies on trust but this claim does not seem to have been pursued at the hearing. See the joint judgment of Mason C.J., Brennan, Deane, Dawson and Gaudron JJ.: (1995) 128 A.L.R. 201 at 213.

⁹⁰ Ibid., at p. 205.

⁹¹ Derrington J. in the Supreme Court of Queensland.

⁹² (1995) 128 A.L.R. 201 at 206. See also Trial Transcript at pp. 26–27.

⁹³ Derrington J. awarded an account of the first four years' profits of the joint venture plus a further one year's profits by way of payment for goodwill less, in both cases, an allowance of 50 per cent, for the time, energy, skill and capital brought into the business by the joint venturers (Transcript at pp. 23–26). This conclusion was affirmed by McPherson J.A. (dissenting) in the Queensland Court of Appeal.

⁹⁴ The majority of the Queensland Court of Appeal (Macrossan C.J. and Pincus J.A.) held that the plaintiffs could recover only the loss which they had suffered due to the defendant's breaches of fiduciary duty (Transcript of their joint reasons at pp. 27–28).

⁹⁵ (1995) 128 A.L.R. 201 at 216. The High Court specifically held (at p. 208) that an account “gives rise to a liability, even in a case of a fiduciary, which is personal”.

⁹⁶ At pp. 211–212.

⁹⁷ (1726)Sel.Cas.t.King 61.

⁹⁸ Citing Griffith v. Owen [1907] 1 Ch. 195 at pp. 203–204, Re Biss [1903] 2 Ch. 40 at p. 57 and Chan v. Zacharia (1984) 154 C.L.R. at pp. 181–182, 201.

⁹⁹ Citing Re Jarvis [1958] 1 W.L.R. 815 and Clegg v. Edmondson (1857) 8 De G.M.&G. 787 at 814.

¹⁰⁰ [1914] A.C. 398.

¹⁰¹ Viscount Haldane L.C. and Lord Atkinson held that the trust in question was “a resulting trust, not of an active character”, while Lord Parker held that it was a constructive trust; Lord Sumner did not indicate with which of these two views he agreed.

¹⁰² A person who deposits money with a bank must necessarily make the bank absolute legal and beneficial owner thereof since otherwise the bank would be unable to utilise the funds other than in accordance with the rules governing trust investments and certainly would not be able to make unsecured loans.

¹⁰³ This equitable proprietary interest would have given the depositors priority over the outside creditors had it not already been agreed that they should be paid off first. It must be at least questionable whether any trust in their favour would or could have been found to exist if this agreement had not already been reached.

¹⁰⁴ [1994] 3 W.L.R. 938. Leave to appeal to the House of Lords has been granted.

¹⁰⁵ In Hazell v. Hammersmith and Fulham London Borough Council [1992] A.C. 1.

¹⁰⁶ [1993] B.C.L.C. 735, affirmed by the Court of Appeal without discussion of this particular point ([1994] 1 B.C.L.C. 464).

¹⁰⁷ [1993] B.C.L.C. 735 at 753.

¹⁰⁸ [1980] 2 W.L.R. 202.

¹⁰⁹ Ibid. at 208.

¹¹⁰ Ibid. at 209.

¹¹¹ [1993] 1 N.Z.L.R. 257.

¹¹² [1994] 3 W.L.R. 199.

¹¹³ Supra, text to footnote 83.

¹¹⁴ Cooke P. and Gault J. (McKay J. dissented).

¹¹⁵ [1994] 3 W.L.R. 199 at 220.

¹¹⁶ Ibid. at 221.

¹¹⁷ (1986) 160C.L.R. 371.

¹¹⁸ Ibid, at 396–400.

¹¹⁹ The case concerned a deposit of funds with stockbrokers prior to the purchase of shares by an individual who had been told that the time was not then right for the purchase of shares and that in the meantime an investment with the firm was “as safe as a bank”. When the firm became insolvent shortly afterwards, the High Court held that, although there was a fiduciary relationship between the stockbrokers and the investor, the firm had received the money beneficially, not as a trustee; therefore the investor had no equitable proprietary interest in the sums deposited and so was not entitled to compensation from a fidelity fund.

¹²⁰ Ibid, at 400.

¹²¹ See particularly the already cited remarks of Gibbs, C.J.in the High Court in Daly v. The Sydney Stock Exchange (1986) 160 C.L.R. 371Google Scholar at 379 and the remarks of Gummow, J. (dissenting) in Stephenson Nominees Pty. v. Official Receiver (1987) 76 A.L.R. 485Google Scholar at 503 (Federal Court of Australia), which were applied by Northrop, J. in Australian Securities Commission v. Melbourne Asset Management Nominees Pty. (1994) 121 A.L.R. 626 (Federal Court of Australia);Google Scholar also (not in the context of an insolvency) the decision of the High Court in Muschinski v. Dodds (1986) 160 C.L.R. 583 to impose a constructive trust only prospectively in order to avoid any prejudice to third parties, which was applied, somewhat controversially, by Pincus, J.in the context of an insolvency in Re Osborn (1989) 91 A.L.R. 135 (Federal Court of Australia).Google Scholar

¹²² See particularly the following (listed in chronological order): Birks, op. cit., EX. Sherwin, [1989] 2 University of Illinois Law Review 297, Paciocco, D.M., 68 Canadian Bar Review (1989) 315;Google Scholar Maddaugh and McCamus, The Law of Restitution (1990), Goode, R.M., Essays on the Law of Restitution (1990) p. 215Google Scholar, Gummow, W.M.C., Essays on Restitution (1990) p. 47Google Scholar, Glover, J., 14 (2) University of New South Wales Law Journal (1991) 247Google Scholar, Burrows, , The Law of Restitution (1993), Goff&Jones, op. cit.Google Scholar

¹²³ With the notable exception of W.M.C. Gummow, who concludes (op. cit., p. 86): “It is not immediately apparent why breach of contract and tortious misconduct in general should be visited with proprietary remedies only where the plaintiff can make out an equity but unjust enrichment regularly should carry some sanction of this special kind. The answer, one may expect, will be that proprietary remedies should remain equitable in nature, developing as equity continues to develop.”

¹²⁴ J. Glover, op. cit., p. 273.

¹²⁵ While it is generally agreed that no proprietary remedy should be available to someone who has transferred property under an ineffective contract, some commentators argue that someone who transfers property “under mistake, compulsion, necessity, or in consequence of another's wrongful act or unconscionable conduct will be deemed to have retained the equitable title” (Goff&Jones, op. cit., p. 94).

¹²⁶ E.L. Sherwin, op. cit., D.M. Paciocco, op. cit. In the United States of America, substantive constructive trusts of the type recognised in England and Australia have been totally subsumed within the remedial constructive trust. In Canada, the two categories continue to subsist side by side and the Canadian commentators envisage that automatic priority should continue to be given in the case of substantive constructive trusts.

¹²⁷ Birks, op cit.. Burrows, op. cit. and Goode, op. cit. adopt the argument subsequently rejected by the Privy Council in Attorney-General for Hong Kong v. Reid that a constructive trust and the consequential proprietary remedy should only be imposed in respect of property of which the constructive beneficiary has been deprived (the three have slightly different definitions of what constitutes deprivation for this purpose). Goff&Jones, op. cit., contend that the availability or non-availability of a proprietary remedy should depend principally on whether or not the recipient of the property in question knew of the facts which form the basis of the proprietary claim and on whether or not he is solvent. They accept that these conclusions (which are substantially different from those found in their earlier editions) are “radical”.

¹²⁸ [1994] 3 W.L.R. 199.

¹²⁹ R.M. Goode, (1987) 103 L.Q.R. 433, Birks, op. cit., GoO”& Jones, op. cit.

¹³⁰ [1986] 1 W.L.R. 1072 at 1074.

¹³¹ [1994] 3 W.L.R. 199 at 227.

¹³² [1994] A.C. 324.

¹³³ [1993] A.C. 713 at 738–739.

¹³⁴ Op. cit.

¹³⁵ Op. cit.

¹³⁶ Op. cit.

¹³⁷ See Ryall, Ryall v. (1739) 1 Atk. 59 and the other authorities cited in [1975] Current Legal Problems 64.Google Scholar

¹³⁸ (1853) DeM.&G. 372.

¹³⁹ [1948] Ch. 465.

¹⁴⁰ (1880) 13Ch.D. 676 at 709.

¹⁴¹ [1976] 1 W.L.R. 676.

¹⁴² They are now generally known as “Romalpa Clauses”.

¹⁴³ (1880) 13Ch.D. 696.

¹⁴⁴ This has not been possible in a number of subsequent cases concerning retention of title clauses. Consequently, the vendors have necessarily had to trace at law. See Clough Mill v. Martin [1985] 1 W.L.R. 111, Hendy Lennox (Industrial Engines) v. Grahame Puttick [1984] 1 W.L.R. 485.

¹⁴⁵ In Scott v. Scott (1962) 109 C.L.R. 649, the funds of an estate were in breach of trust used to pay part of the purchase price of a house conveyed into the name of one of the trustees. The High Court of Australia upheld the right of the estate to share rateably in the subsequent increase in the value of the house. It has, however, been argued that the priority given to the holder of such an equitable proprietary interest should be limited to whatever is necessary to enable him to recuperate his lost funds and should not extend to any profit made thereby. See infra, text to footnote 191.

¹⁴⁶ [1976] 1 W.L.R. 676.

¹⁴⁷ [1979] 3 W.L.R. 672 per Bridge L.J. at 684.

¹⁴⁸ In Borden (U.K.) v. Scottish Timber Products [1979] 3 W.L.R. 672 and Re Peachdart [1983] 3 W.L.R. 878 it was held that the terms of the contract did not have the effect of giving the vendor any proprietary interest in the new object; in Re Bond Worth [1979] 3 W.L.R. 629, Re Andrabell [1984] 3 All E.R. 407 and Hendy Lennox (Industrial Engines) v. Grahame Puttick [1984] 1 W.L.R. 485 it was held that there was no sufficient fiduciary relationship; and in Re Bond Worth, Re Peachdart, Re Weldtech Equipment [1991] B.C.C. 16 and Compaq Computer v. Abercorn Group [1991] B.C.C. 484 it was held that any interest created in the new object amounted to a charge which should have been registered under what is now Companies Act 1985, ss. 395– 404.

¹⁴⁹ (1880) 13Ch.D. 696.

¹⁵⁰ Re Ward& Co. (1937) 10 A.B.C. 42, Re Docker (1938) 10 A.B.C. 97.

¹⁵¹ (1987)76A.L.R. 485.

¹⁵² His Honour did not specifically deal with the question of identifiability. He stated (at 493) that “by robbing an unascertained number of Peters [the bankrupt] was hoping to pay Paul. In my view, such a state of mind does not rebut the existence of a resulting trust in favour of the supplier of the funds”: as to the existence of a constructive trust, he stated (at 494) that Stephenson Nominees were tainted by the misconduct of the bankrupt who had been acting as its agent so that “it would be unconscionable and unjust for [it] to assert a beneficial title to the funds in court”.

¹⁵³ [1986] 1 W.L.R. 1072.

¹⁵⁴ The depositors in an ultra vires banking business were of course held to have an equitable proprietary interest in Sinclair v. Brougham [1914] A.C. 398 (discussed supra, text to footnote 100), a decision which surprisingly was not cited. The imposition of the trust necessary to give rise to this equitable proprietary interest has already been criticised, principally because of its potential effect on the general creditors had they not already been paid off.

¹⁵⁵ [1986] 1 W.L.R. 1072 at 1074.

¹⁵⁶ See Goode, R.M., (1987) 103 L.Q.R. 433. An equally unorthodox, but this time excessively narrow, view of equitable tracing claims of this type was taken in Re Attorney-General's Reference (No. I of 1985) [1986] Q.B. 491.Google Scholar However, this view was based on Lister&Co. v. Stubbs (1890) 45 Ch.D. 1 and therefore presumably cannot survive the overruling of that decision by the Privy Council in Attorney-General for Hong Kong v. Reid [1993] 3 W.L.R. 1143.Google Scholar

¹⁵⁷ [1994] 3 W.L.R. 199.

¹⁵⁸ Sub nom. Liggett v. Kensington [1993] 1 N.Z.L.R. 257.

¹⁵⁹ Ibid. at 274.

¹⁶⁰ [1994] 3 W.L.R. 199 at 222.

¹⁶¹ Established in James Roscoe (BoltonJ v. Winder [1915] 1 Ch. 62.

¹⁶² They had been clients of a separate company later taken over by the gold-dealer and their “nonallocated bullion” had actually been transferred in specie to the latter. No appeal was made against their entitlement to trace that bullion but the Privy Council, applying the same traditional rule laid down in James Roscoe (Bolton) v. Winder, restricted their right to do so to the lowest balance of metal held by the gold-dealer at any subsequent time.

¹⁶³ [1994] 3 W.L.R. 199 at 227.

¹⁶⁴ Because it would in any event have been inequitable to grant them a lien on the assets of the gold-dealer other than those into which they were already entitled to trace. Thus even if Lord Templeman's remarks had been held to be applicable, the Privy Council would not in fact have applied them.

¹⁶⁵ [1994)3 W.L.R. 1270.

¹⁶⁶ Per Dillon L.J. at 1275, per Leggatt L.J. at 1278 (Henry L.J. agreed with both judgments).

¹⁶⁷ Ibid. at 1276.

¹⁶⁸ (1991) 34 N.S.W.L.R. 308.

¹⁶⁹ Ibid. at 341.

¹⁷⁰ (1880) BCh.D. 696.

¹⁷¹ Thesiger, L.J. dissented, holding that payments out of the mixed fund should, in accordance with the decision of the Court of Appeal in Pennell v. Defell (1853)Google ScholarDe, M.&, G. 372, be governed by the rule enunciated in Devaynes v. Noble, Clayton's Case (1816) 1 Mer. 572Google Scholar (discussed infra, text to footnote 192).

¹⁷² Had this not been the case, priorities as between the two claimants would have been determined by the rule enunciated in Devaynes v. Noble, Clayton's Case (1816) 1 Mer. 572 (discussed infra, text to footnote 192), as indeed had been held by Fry J. at first instance.

¹⁷³ Brady v. Stapleton (1952) 88 C.L.R. 322 (High Court of Australia); this case involved shares.

¹⁷⁴ [1915] 1 Ch. 62.

¹⁷⁵ [1994] 3 W.L.R. 199.

¹⁷⁶ [1995] 3 W.L.R. 1270.

¹⁷⁷ Ibid. at 1274.

¹⁷⁸ Ibid. at 1279.

¹⁷⁹ [1903] 2 Ch. 356.

¹⁸⁰ [1995] 3 W.L.R. 1270.

¹⁸¹ Ibid. at 1274.

¹⁸² Ibid. at 1279.

¹⁸³ (1880) 13Ch.D. 696 at 709.

¹⁸⁴ [1903] 2 Ch. 356.

¹⁸⁵ This remark is a potential cause of confusion; however, there is no doubt that Joyce J. followed Re Hallett's Estate.

¹⁸⁶ (1962) 109 C.L.R. 649.

¹⁸⁷ Arguably, the estate could also have claimed the profit made by the tenant for life on the basis that this amounted to a secret profit made out of a breach of fiduciary duty. However, in the High Court the estate was the respondent and chose not to cross appeal on the grounds that the proportion of the profit awarded to the estate at first instance was in fact too low.

¹⁸⁸ (1962) 109 C.L.R. 649 at 664.

¹⁸⁹ (1991) 34 N.S.W.L.R. 308 at 355–356.

¹⁹⁰ [1967] 2 W.L.R. 1533 at 1542.

¹⁹¹ See Jones, G.H., (1988) 37 Kings Counsel 15 at 16.Google Scholar

¹⁹² (1817) 1 Mer. 572.

¹⁹³ Ibid. at 608–609.

¹⁹⁴ (1853) DeM.& G. 372.

¹⁹⁵ (1880) 13 Ch.D. 696. This conclusion was confirmed in Hagan v. Waterhouse (1991) 34 N.S.W.L.R. 308 at 358.Google Scholar

¹⁹⁶ Sir George Jessel M.R. and Baggallay L.J., who had held that the Rule in Clayton's Clase did not apply to mixed funds consisting of funds of a claimant and funds of a fiduciary, agreed with Thesiger L.J., who had taken the opposite view, that the Rule in Clayton's Case clearly applied to mixed funds consisting of funds of two claimants.

¹⁹⁷ (1889) 41 Ch.D. 456 per Lord Halsbury L.C. and Cotton L.J. (Fry L.J. did not deal with the point).

¹⁹⁸ [1992] 4 All E.R. 22.

¹⁹⁹ (1923) 298 Fed. 314 (United States of America).

²⁰⁰ [1991] 1 N.Z.L.R. 545.

²⁰¹ Re Diplock [1948] Ch. 465 (in respect of the claim against the National Institute for the Deaf).

²⁰² Ibid. at 524.

²⁰³ [1914] A.C. 398.

²⁰⁴ By D.J. Hayton, (1990) 106 L.Q.R. 87 at 100.

²⁰⁵ (1983) 154C.L.R. 326 at 339.

²⁰⁶ Ibid.

²⁰⁷ Ibid. at 341.

²⁰⁸ (1965) 113C.L.R. 265.

²⁰⁹ The High Court thus adopted the opinion of Lord Westbury in Phillips v. Phillips (1861) 4 De G.F.&J. 208 rather than the opinion of Lord St. Leonards in Stump v. Gaby (1852) 4 De G.M. & G. 623. Kitto J. had little difficulty in reaching this conclusion but both Taylor, J. and Menzies, J. were less certain as to the matter. Menzies J. distinguished the two lines of authority at pp. 290–291 (see J. Glover, (1991)Google Scholar 199 A.B.L.R. 97 at 107–112).

²¹⁰ Such as an equitable mortgagee or a purchaser under a specifically enforceable contract of sale.

²¹¹ The classification adopted does not appear to affect the priority enjoyed by the potential beneficiary as against the trustee in bankruptcy and the general creditors of the potential constructive trustee. Even if the bankruptcy precedes the court order upholding the constructive trust, it is generally accepted that, once a constructive trust has been upheld, it has retrospective effect to the date of the conduct which gave rise to its imposition (see Queensland Mines v. Hudson (1975) A.C.L.C. 40–266, Muschinski v. Dodds (1985) 160 C.L.R. 583 per Deane J. at 614) unless, as in Muchinski v. Dodds, the court specifically orders that the trust should not take effect retrospectively. Save in the latter case, the intervening bankruptcy prior to the court order cannot affect the situation simply because neither the trustee in bankruptcy nor the general creditors will have provided value at that stage. Thus in Re Sharpe [1980] 1 W.L.R. 219, the beneficiary of a constructive trust upheld after bankruptcy was held to have had a right to occupy the property in question from the date of its acquisition prior to bankruptcy and her interest was consequently binding on the trustee in bankruptcy. However, the fact that the court can order that the trust should not take effect retrospectively of course enables the priority enjoyed by the potential beneficiary to be denied if this is felt to be appropriate—this occurred in the controversial decision in Re Osborn (1989) 91 A.L.R. 135 (Federal Court of Australia).

²¹² By i. Glover, (1991) 19 A.B.L.R. 97 at 108.

²¹³ If what triggers the retrospective effect is the court order, the right must presumably also remain a mere equity during the litigation.

²¹⁴ [1992] 1 Qd.R. 105.

²¹⁵ (1986) 160 C.L.R. 583 at 613–614.

²¹⁶ [1992] 1 Qd.R. 105 at 108.

²¹⁷ Ibid.

²¹⁸ This was held by the Privy Council in In Re Goldcorp Exchange [1994] 3 W.L.R. 199 and was the ground on which the Board rejected the view adopted by Cooke P. in the New Zealand Court of Appeal that the purchasers of the “non-allocated bullion” had throughout retained an equitable proprietary interest in the purchase moneys. See also Daly v. The Sydney Stock Exchange (1986) 160 C.L.R. 371, where Brennan J. held (at 396–400) that an equitable interest in property transferred by way of gift or upon sale to a fiduciary who has failed to discharge his fiduciary duty to the transferor will only be reacquired by the transferor once he has avoided the transaction in question.

²¹⁹ [1991)3 W.L.R. 10.

²²⁰ Such a defence was also envisaged by the High Court of Australia in David Securities v. Commonwealth Bank of Australia (1992) 66 A.L.J.R. 768 at 780–781.Google Scholar

²²¹ [1991] 3 W.L.R. 10 at 15.

²²² Ibid. at 34–35.

²²³ The House of Lords actually applied the defence to an action for money had and received, the principal claim being ventilated before them; consequently, the precise scope of the defence has been a matter of some speculation.

²²⁴ [1991] 3 W.L.R. 10 at 39.

²²⁵ [1948] Ch. 465 at 546–548.

²²⁶ See Goff&Jones, op. cit., p. 600.

²²⁷ [1948] Ch. 465 at 556.

²²⁸ Re J. Leslie Engineers [1976] 1 W.L.R. 292.

²²⁹ (1991) 34 N.S.W.L.R. 308 at 369–370.

²³⁰ Raised by the son of one of the trustees to whom some of the assets purchased with the income from the bookmaking business had been transferred.

²³¹ Administration Act 1952, s. 308(5) (New Zealand), Trustee Act 1962, s. 65(7) (Western Australia). Most commentators regard this as a more satisfactory way of dealing with the problem (see Goff&Jones, op. cit., p. 92). However, Queensland has gone even further than the Court of Appeal in Re Diplock and prohibits, except by leave of the court, any claim against any transferee of trust property transferred in breach of trust until the claimant has exhausted his remedies against the fiduciary responsible (Trusts Act 1973, s. 109(2)—see W.A. Lee: (1981) 1 O.J.L.S.414).

²³² Goff&Jones, op. cit., p. 92.