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Equity and Trust – What Is an Equitable Lien?
Introduction
An equitable lien is a proprietary equitable remedy that gives a claimant:
a security interest over property
to secure repayment of money owed.
Unlike ownership, an equitable lien does not give the claimant title to the property itself. Instead, it gives the claimant the right to have the property sold so that the debt or claim can be satisfied from the sale proceeds.
Equitable liens are extremely important in:
Meaning of an Equitable Lien
An equitable lien arises where equity recognises that it would be unfair for a defendant to retain property without securing repayment to the claimant.
The claimant therefore obtains:
✅ a charge over the property.
This allows the claimant to enforce the debt against the property itself.
Important Point
An equitable lien is:
❌ not ownership of the property.
Instead, it is:
✅ security over the property.
Example
Assume Daniel wrongfully takes:
£200,000
from a trust and mixes it with:
£300,000
of his own money to buy shares worth:
£500,000.
The beneficiaries may seek:
✅ an equitable lien over the shares
for:
£200,000.
What Does This Mean?
The beneficiaries do not own all the shares.
Instead, they possess:
✅ a secured claim over the shares
for the amount of trust money used.
Enforcement
If Daniel refuses to repay the money, the beneficiaries may ask the court to:
✅ order sale of the shares.
The beneficiaries then recover:
Why Equitable Liens Matter
An equitable lien gives the claimant strong protection because they become:
✅ secured creditors.
This is especially important if the trustee becomes bankrupt.
Insolvency Example
Suppose Daniel later becomes insolvent.
Without Equitable Lien
The beneficiaries become:
❌ unsecured creditors.
They may recover little or nothing.
With Equitable Lien
The beneficiaries possess:
✅ security over the property.
They therefore obtain:
Difference Between Equitable Lien and Ownership
This distinction is extremely important.
Equitable Lien
Gives:
✅ security rights only.
The claimant receives repayment from the property.
Proprietary Ownership / Constructive Trust
Gives:
✅ ownership rights in the property itself.
This may allow the claimant to benefit from:
Example With Figures
Trust Money Used
£200,000.
Shares Purchased
£500,000.
Shares Later Worth
£2 million.
If Beneficiaries Take Equitable Lien
They recover:
✅ £200,000
plus interest.
If Beneficiaries Take Proportionate Ownership
They may recover:
✅ 40% of £2 million
= £800,000.
Which Remedy Is Better?
It depends on the circumstances.
Equitable Lien Preferred When
Ownership Preferred When
Equitable Lien in Tracing
Equitable liens commonly arise in tracing claims where:
Foskett v McKeown
The leading authority is Foskett v McKeown.
Lord Millett explained that where trust money contributes to purchasing an asset, beneficiaries may choose between:
Equitable Lien vs Common Law Lien
A common law lien usually gives:
Possession is not always required.
Practical Example
Suppose:
£300,000.
Best Remedy?
The beneficiaries may prefer:
✅ an equitable lien
for £100,000,
rather than taking 20% ownership worth only:
❌ £60,000.
Key SQE Principle
An equitable lien:
✅ gives security over property,
not ownership.
It allows the claimant to:
Conclusion
An equitable lien is a powerful proprietary equitable remedy that grants the claimant a security interest over property to secure repayment of money owed. Although it does not provide ownership of the asset itself, it allows the claimant to enforce repayment directly against the property and obtain priority over unsecured creditors. In tracing cases, equitable liens are particularly valuable where trust money has contributed to acquisition of substitute assets and provide beneficiaries with strong proprietary protection after breaches of trust.
Sources of Reference
Foskett v McKeown [2001] 1 AC 102 (HL).
Re Hallett’s Estate (1880) 13 Ch D 696 (CA).
Re Oatway [1903] 2 Ch 356.
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
An equitable lien is a proprietary equitable remedy that gives a claimant:
a security interest over property
to secure repayment of money owed.
Unlike ownership, an equitable lien does not give the claimant title to the property itself. Instead, it gives the claimant the right to have the property sold so that the debt or claim can be satisfied from the sale proceeds.
Equitable liens are extremely important in:
- equitable tracing;
- breach of trust;
- fiduciary wrongdoing;
- mortgages;
- and proprietary remedies.
Meaning of an Equitable Lien
An equitable lien arises where equity recognises that it would be unfair for a defendant to retain property without securing repayment to the claimant.
The claimant therefore obtains:
✅ a charge over the property.
This allows the claimant to enforce the debt against the property itself.
Important Point
An equitable lien is:
❌ not ownership of the property.
Instead, it is:
✅ security over the property.
Example
Assume Daniel wrongfully takes:
£200,000
from a trust and mixes it with:
£300,000
of his own money to buy shares worth:
£500,000.
The beneficiaries may seek:
✅ an equitable lien over the shares
for:
£200,000.
What Does This Mean?
The beneficiaries do not own all the shares.
Instead, they possess:
✅ a secured claim over the shares
for the amount of trust money used.
Enforcement
If Daniel refuses to repay the money, the beneficiaries may ask the court to:
✅ order sale of the shares.
The beneficiaries then recover:
- the £200,000;
- plus possibly interest and costs
Why Equitable Liens Matter
An equitable lien gives the claimant strong protection because they become:
✅ secured creditors.
This is especially important if the trustee becomes bankrupt.
Insolvency Example
Suppose Daniel later becomes insolvent.
Without Equitable Lien
The beneficiaries become:
❌ unsecured creditors.
They may recover little or nothing.
With Equitable Lien
The beneficiaries possess:
✅ security over the property.
They therefore obtain:
- priority over unsecured creditors;
- stronger enforcement rights;
- and proprietary protection.
Difference Between Equitable Lien and Ownership
This distinction is extremely important.
Equitable Lien
Gives:
✅ security rights only.
The claimant receives repayment from the property.
Proprietary Ownership / Constructive Trust
Gives:
✅ ownership rights in the property itself.
This may allow the claimant to benefit from:
- increases in value;
- profits;
- and appreciation.
Example With Figures
Trust Money Used
£200,000.
Shares Purchased
£500,000.
Shares Later Worth
£2 million.
If Beneficiaries Take Equitable Lien
They recover:
✅ £200,000
plus interest.
If Beneficiaries Take Proportionate Ownership
They may recover:
✅ 40% of £2 million
= £800,000.
Which Remedy Is Better?
It depends on the circumstances.
Equitable Lien Preferred When
- the asset decreased in value;
- the claimant wants guaranteed repayment;
- or the asset produces little profit.
Ownership Preferred When
- the asset increased significantly in value;
- the claimant wants proportional profits;
- or the asset is highly valuable.
Equitable Lien in Tracing
Equitable liens commonly arise in tracing claims where:
- trust money contributes to acquisition of property;
- mixed funds are used;
- or substitute assets are purchased.
- a lien;
or - proportional ownership.
Foskett v McKeown
The leading authority is Foskett v McKeown.
Lord Millett explained that where trust money contributes to purchasing an asset, beneficiaries may choose between:
- a proportionate share in the asset;
or - an equitable lien securing repayment.
Equitable Lien vs Common Law Lien
A common law lien usually gives:
- possession-based rights.
Possession is not always required.
Practical Example
Suppose:
- Daniel uses £100,000 trust money;
- plus £400,000 personal money;
- to buy a property worth £500,000.
£300,000.
Best Remedy?
The beneficiaries may prefer:
✅ an equitable lien
for £100,000,
rather than taking 20% ownership worth only:
❌ £60,000.
Key SQE Principle
An equitable lien:
✅ gives security over property,
not ownership.
It allows the claimant to:
- force sale of the property;
- recover money from sale proceeds;
- and obtain secured creditor status.
Conclusion
An equitable lien is a powerful proprietary equitable remedy that grants the claimant a security interest over property to secure repayment of money owed. Although it does not provide ownership of the asset itself, it allows the claimant to enforce repayment directly against the property and obtain priority over unsecured creditors. In tracing cases, equitable liens are particularly valuable where trust money has contributed to acquisition of substitute assets and provide beneficiaries with strong proprietary protection after breaches of trust.
Sources of Reference
Foskett v McKeown [2001] 1 AC 102 (HL).
Re Hallett’s Estate (1880) 13 Ch D 696 (CA).
Re Oatway [1903] 2 Ch 356.
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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