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Equity and Trust – Tracing
Introduction
Tracing is one of the most important doctrines in equity and trust law. It becomes relevant where there has been:
Importantly, tracing itself is:
❌ not a remedy.
Rather, it is:
✅ a process.
Tracing enables the claimant to identify property or substitute assets so that proprietary or personal remedies may later be claimed.
Meaning of Tracing
Tracing is the legal process by which a claimant:
follows property into its substitutes or proceeds.
It allows the claimant to identify:
Foskett v McKeown
The leading authority is Foskett v McKeown.
Lord Millett explained:
tracing is neither a claim nor a remedy.
Instead, tracing is merely the process by which the claimant demonstrates:
Example of Tracing
Suppose Daniel is trustee of the Carter Family Trust.
Daniel wrongfully removes:
£100,000
from the trust and uses it to purchase shares.
The beneficiaries may trace:
Why Tracing Matters
Tracing is extremely valuable because it may enable the claimant to obtain:
✅ proprietary remedies.
Proprietary remedies are usually stronger than personal remedies.
Proprietary Remedies
A proprietary remedy gives rights:
✅ over specific property.
Examples include:
Personal Remedies
A personal remedy operates only:
✅ against the defendant personally.
Examples include:
Importance of Proprietary Rights
Where tracing succeeds, proprietary rights attach to the asset itself.
This creates major advantages.
Advantages of Proprietary Remedies
Ownership of Appreciating Assets
The claimant may obtain:
✅ the asset itself,
including increases in value.
Example
Suppose:
✅ a proportionate share worth £1 million.
Priority in Insolvency
Proprietary claimants obtain:
✅ priority over unsecured creditors.
This becomes extremely important if the trustee becomes bankrupt.
Example
Suppose Daniel becomes insolvent.
Personal Remedy
The beneficiaries become:
❌ unsecured creditors.
Proprietary Remedy
If beneficiaries traced successfully into property:
✅ they recover directly from the asset itself.
Weaknesses of Proprietary Remedies
Tracing only works if the property remains identifiable.
If tracing rights are lost:
❌ proprietary remedies fail.
Example of Dissipation
Suppose Daniel spends trust money on:
No identifiable substitute property remains.
Tracing therefore fails.
Personal Remedies Still Remain
Even if tracing fails, the claimant may still seek:
✅ equitable compensation.
However, recovery depends upon the defendant’s personal wealth.
Two Types of Tracing
There are two distinct tracing systems:
Common Law Tracing
Common law tracing protects:
✅ legal ownership.
It is restrictive and generally fails when funds become mixed.
Example
If stolen money is mixed into a bank account with other money:
❌ common law tracing usually fails.
Equitable Tracing
Equitable tracing protects:
✅ equitable ownership.
It is more flexible and allows tracing through:
✅ equitable tracing.
Why Equitable Tracing Is More Important
Modern financial systems involve:
Proprietary Interest Requirement
Tracing depends upon the claimant possessing:
✅ a proprietary interest in the property.
Legal Owners
May use:
✅ common law tracing.
Equitable Owners
Such as beneficiaries under trusts, may use:
✅ equitable tracing only.
Criticism of Separate Tracing Systems
The distinction between common law tracing and equitable tracing has been criticised.
Lord Millett in Foskett questioned whether separate tracing systems remain conceptually justified.
Some cases have blurred the distinction between the two.
Trustee of FC Jones v Jones
In Trustee of the Property of FC Jones (A Firm) v Jones, the court was criticised for blurring boundaries between common law and equitable tracing principles.
This reflects continuing uncertainty and academic debate.
Tracing Into Third Parties
Tracing may continue not only against the original trustee or fiduciary, but also into the hands of third parties.
The third party’s position depends upon:
Third Party Categories
Bona Fide Purchaser for Value Without Notice
Protected against tracing claims.
Innocent Volunteer
May still be subject to tracing.
Knowing Recipient
May face both proprietary and personal liability.
Dishonest Assistant
May face personal liability.
Tracing Does Not Automatically Give a Remedy
This is extremely important.
Tracing only:
✅ identifies the property.
The claimant must still seek:
Example Combining Tracing and Remedies
Suppose Daniel steals:
£200,000
from the trust and buys property now worth:
£800,000.
Step 1 – Tracing
The beneficiaries trace into the property.
Step 2 – Remedy
The court may grant:
Why Tracing Is Powerful
Tracing allows claimants to preserve proprietary rights even where property changes form repeatedly.
It prevents wrongdoers from escaping liability merely by converting assets into different forms.
Modern Importance
Tracing is central in cases involving:
Key SQE Principles
Tracing is:
✅ a process,
not a remedy.
It identifies:
✅ equitable tracing.
Conclusion
Tracing is a fundamental process in equity and trust law that enables claimants to identify what has happened to misappropriated property and where it has gone. Although tracing itself is not a remedy, it provides the foundation for powerful proprietary remedies such as constructive trusts and equitable liens. The distinction between common law tracing and equitable tracing remains important, with equitable tracing offering greater flexibility and protection for beneficiaries in modern financial contexts. By preserving proprietary rights through substitute assets and mixed transactions, tracing continues to play a central role in asset recovery and fiduciary accountability.
Sources of Reference
Foskett v McKeown [2001] 1 AC 102 (HL).
Re Diplock [1948] Ch 465.
Trustee of the Property of FC Jones (A Firm) v Jones [1997] Ch 159.
Taylor v Plumer (1815) 3 M & S 562.
Agip (Africa) Ltd v Jackson [1991] Ch 547 (CA).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
Tracing is one of the most important doctrines in equity and trust law. It becomes relevant where there has been:
- a breach of trust;
- a breach of fiduciary duty;
- fraud;
- misappropriation of assets;
- or unauthorised profits made by a fiduciary.
- recovery of property;
- recovery of profits;
- compensation for losses;
- or proprietary claims over substitute assets.
Importantly, tracing itself is:
❌ not a remedy.
Rather, it is:
✅ a process.
Tracing enables the claimant to identify property or substitute assets so that proprietary or personal remedies may later be claimed.
Meaning of Tracing
Tracing is the legal process by which a claimant:
follows property into its substitutes or proceeds.
It allows the claimant to identify:
- what happened to the property;
- who received it;
- and where it currently resides.
Foskett v McKeown
The leading authority is Foskett v McKeown.
Lord Millett explained:
tracing is neither a claim nor a remedy.
Instead, tracing is merely the process by which the claimant demonstrates:
- what happened to the property;
- identifies substitute property;
- and justifies proprietary claims over it.
Example of Tracing
Suppose Daniel is trustee of the Carter Family Trust.
Daniel wrongfully removes:
£100,000
from the trust and uses it to purchase shares.
The beneficiaries may trace:
- from the trust money;
into - the shares.
Why Tracing Matters
Tracing is extremely valuable because it may enable the claimant to obtain:
✅ proprietary remedies.
Proprietary remedies are usually stronger than personal remedies.
Proprietary Remedies
A proprietary remedy gives rights:
✅ over specific property.
Examples include:
- constructive trusts;
- equitable liens;
- equitable charges;
- and subrogation.
Personal Remedies
A personal remedy operates only:
✅ against the defendant personally.
Examples include:
- equitable compensation;
- damages;
- and account of profits.
Importance of Proprietary Rights
Where tracing succeeds, proprietary rights attach to the asset itself.
This creates major advantages.
Advantages of Proprietary Remedies
Ownership of Appreciating Assets
The claimant may obtain:
✅ the asset itself,
including increases in value.
Example
Suppose:
- £100,000 trust money;
- purchases shares later worth:
£1 million.
✅ a proportionate share worth £1 million.
Priority in Insolvency
Proprietary claimants obtain:
✅ priority over unsecured creditors.
This becomes extremely important if the trustee becomes bankrupt.
Example
Suppose Daniel becomes insolvent.
Personal Remedy
The beneficiaries become:
❌ unsecured creditors.
Proprietary Remedy
If beneficiaries traced successfully into property:
✅ they recover directly from the asset itself.
Weaknesses of Proprietary Remedies
Tracing only works if the property remains identifiable.
If tracing rights are lost:
❌ proprietary remedies fail.
Example of Dissipation
Suppose Daniel spends trust money on:
- holidays;
- restaurant meals;
- or gambling.
No identifiable substitute property remains.
Tracing therefore fails.
Personal Remedies Still Remain
Even if tracing fails, the claimant may still seek:
✅ equitable compensation.
However, recovery depends upon the defendant’s personal wealth.
Two Types of Tracing
There are two distinct tracing systems:
- common law tracing;
- equitable tracing.
Common Law Tracing
Common law tracing protects:
✅ legal ownership.
It is restrictive and generally fails when funds become mixed.
Example
If stolen money is mixed into a bank account with other money:
❌ common law tracing usually fails.
Equitable Tracing
Equitable tracing protects:
✅ equitable ownership.
It is more flexible and allows tracing through:
- mixed funds;
- substitute assets;
- and complex transactions.
✅ equitable tracing.
Why Equitable Tracing Is More Important
Modern financial systems involve:
- bank transfers;
- electronic payments;
- mixed accounts;
- and sophisticated fraud structures.
Proprietary Interest Requirement
Tracing depends upon the claimant possessing:
✅ a proprietary interest in the property.
Legal Owners
May use:
✅ common law tracing.
Equitable Owners
Such as beneficiaries under trusts, may use:
✅ equitable tracing only.
Criticism of Separate Tracing Systems
The distinction between common law tracing and equitable tracing has been criticised.
Lord Millett in Foskett questioned whether separate tracing systems remain conceptually justified.
Some cases have blurred the distinction between the two.
Trustee of FC Jones v Jones
In Trustee of the Property of FC Jones (A Firm) v Jones, the court was criticised for blurring boundaries between common law and equitable tracing principles.
This reflects continuing uncertainty and academic debate.
Tracing Into Third Parties
Tracing may continue not only against the original trustee or fiduciary, but also into the hands of third parties.
The third party’s position depends upon:
- their knowledge;
- and whether they provided value.
Third Party Categories
Bona Fide Purchaser for Value Without Notice
Protected against tracing claims.
Innocent Volunteer
May still be subject to tracing.
Knowing Recipient
May face both proprietary and personal liability.
Dishonest Assistant
May face personal liability.
Tracing Does Not Automatically Give a Remedy
This is extremely important.
Tracing only:
✅ identifies the property.
The claimant must still seek:
- constructive trusts;
- equitable liens;
- equitable compensation;
- rescission;
- or other remedies.
Example Combining Tracing and Remedies
Suppose Daniel steals:
£200,000
from the trust and buys property now worth:
£800,000.
Step 1 – Tracing
The beneficiaries trace into the property.
Step 2 – Remedy
The court may grant:
- a constructive trust;
- proportional ownership;
- or an equitable lien.
Why Tracing Is Powerful
Tracing allows claimants to preserve proprietary rights even where property changes form repeatedly.
It prevents wrongdoers from escaping liability merely by converting assets into different forms.
Modern Importance
Tracing is central in cases involving:
- trusts;
- fiduciary breaches;
- fraud;
- insolvency;
- unjust enrichment;
- and financial crime.
Key SQE Principles
Tracing is:
✅ a process,
not a remedy.
It identifies:
- substitute property;
- proceeds;
- and recipients.
- common law tracing;
- equitable tracing.
✅ equitable tracing.
Conclusion
Tracing is a fundamental process in equity and trust law that enables claimants to identify what has happened to misappropriated property and where it has gone. Although tracing itself is not a remedy, it provides the foundation for powerful proprietary remedies such as constructive trusts and equitable liens. The distinction between common law tracing and equitable tracing remains important, with equitable tracing offering greater flexibility and protection for beneficiaries in modern financial contexts. By preserving proprietary rights through substitute assets and mixed transactions, tracing continues to play a central role in asset recovery and fiduciary accountability.
Sources of Reference
Foskett v McKeown [2001] 1 AC 102 (HL).
Re Diplock [1948] Ch 465.
Trustee of the Property of FC Jones (A Firm) v Jones [1997] Ch 159.
Taylor v Plumer (1815) 3 M & S 562.
Agip (Africa) Ltd v Jackson [1991] Ch 547 (CA).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
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