SQE – Equity and Trust – Is Breach of Trust the Same as Breach of Fiduciary Duty?
Short Answer
❌ No.
A breach of trust is not exactly the same as a breach of fiduciary duty, although the two concepts are closely related and often overlap.


Introduction
Both breach of trust and breach of fiduciary duty involve wrongdoing by a person who owes obligations to another. Both arise within equity and both may lead to equitable remedies such as:

• equitable compensation;
• account of profits;
• constructive trusts;
• tracing;
• and injunctions.

However, they are not identical concepts.


Breach of Trust
Definition
A breach of trust occurs where:
a trustee fails to comply with the duties imposed by the trust.
The trustee violates obligations arising from:

• the trust deed;
• trust law;
• fiduciary obligations;
• or statutory duties.

Examples of Breach of Trust
A trustee commits breach of trust if they:

• misappropriate trust money;
• invest imprudently;
• distribute assets incorrectly;
• fail to safeguard trust property;
• act outside trustee powers;
• or fail to act impartially between beneficiaries.

Example
Suppose Daniel is trustee of the Carter Family Trust.
Daniel improperly removes:
£200,000
from the trust to buy a car.
This is:
✅ breach of trust.


Breach of Fiduciary Duty
Definition
A breach of fiduciary duty occurs where:
a fiduciary acts disloyally or contrary to the interests of the person to whom duties are owed.
Fiduciary duties are duties of:

• loyalty;
• good faith;
• honesty;
• and avoidance of conflicts of interest.

Fiduciaries Are Broader Than Trustees
Trustees are fiduciaries, but many other people are also fiduciaries, including:

• company directors;
• solicitors;
• agents;
• partners;
• executors;
• and financial advisers.

Therefore:
✅ all trustees are fiduciaries,
but
❌ not all fiduciaries are trustees.


Examples of Breach of Fiduciary Duty
A fiduciary breaches duty if they:

• make secret profits;
• place themselves in conflicts of interest;
• misuse confidential information;
• act disloyally;
• or prioritise personal interests over beneficiaries.

Example
Suppose a company director secretly profits from a business opportunity belonging to the company.
This is:
✅ breach of fiduciary duty,
even though no trust exists.


Relationship Between the Two
Important Principle
Every trustee owes fiduciary duties.
Therefore:
✅ some breaches of trust are also breaches of fiduciary duty.
However:
❌ not every breach of trust is fiduciary in nature.


Key Distinction
Fiduciary duties focus mainly upon:
✅ loyalty and conflicts of interest.
Trust duties are broader and also include:

• administrative duties;
• investment duties;
• accounting obligations;
• and management responsibilities.

Example of Breach of Trust But Not Fiduciary Breach
Suppose Daniel, as trustee:

• invests trust funds carelessly;
• but honestly and without self-interest.

This may be:
✅ breach of trust,
because he acted negligently.
But it may not be:
❌ breach of fiduciary duty,
because there was no disloyalty or conflict of interest.


Example of Both
Suppose Daniel uses trust money to buy property for himself.
This is:
✅ breach of trust,
and
✅ breach of fiduciary duty.
Why?
Because Daniel:

• misused trust assets;
• acted disloyally;
• and placed personal interests above beneficiaries.

Fiduciary Duties Are Proscriptive
An important distinction is that fiduciary duties are usually:
proscriptive,
not prescriptive.
This means fiduciary law mainly tells fiduciaries what they:
❌ must not do,
such as:

• making secret profits;
• entering conflicts of interest;
• acting disloyally.

Trust Duties Can Be Positive Duties
Trustees also owe:
✅ positive administrative duties,
including:

• investing properly;
• keeping accounts;
• safeguarding trust property;
• and distributing assets correctly.

Failure to perform these duties may create breach of trust even without disloyal conduct.


Remedies
The remedies often overlap.


Remedies for Breach of Trust

• equitable compensation;
• tracing;
• constructive trusts;
• equitable liens;
• account of profits.

Remedies for Breach of Fiduciary Duty

• account of profits;
• constructive trusts;
• rescission;
• equitable compensation;
• injunctions.

Key Cases
Breach of Fiduciary Duty

• Boardman v Phipps
• Keech v Sandford

Breach of Trust

• Target Holdings Ltd v Redferns
• Foskett v McKeown

Academic View
Modern equity scholars often emphasise that:

• breach of fiduciary duty concerns loyalty;
• while breach of trust concerns broader trustee obligations.

Therefore the concepts overlap but are not identical.


Simple Comparison
Breach of Trust
Concerned with:
✅ violation of trust obligations generally.
Includes:

• negligence;
• mismanagement;
• improper investments;
• wrongful distributions.

Breach of Fiduciary Duty
Concerned with:
✅ disloyalty and conflicts of interest.
Includes:

• secret profits;
• self-dealing;
• conflicts;
• misuse of position.

Key SQE Principle
All trustees are fiduciaries.
Therefore:
✅ a trustee may commit both breaches simultaneously.
However:
❌ breach of trust is broader than breach of fiduciary duty.


Conclusion
Breach of trust and breach of fiduciary duty are closely connected but distinct concepts within equity. A breach of trust occurs whenever a trustee fails to comply with obligations imposed by trust law, while a breach of fiduciary duty specifically concerns disloyalty, conflicts of interest, and misuse of fiduciary position. Although many breaches of trust also involve fiduciary wrongdoing, some breaches of trust arise merely from negligence or poor administration rather than disloyal conduct. The distinction is important because fiduciary duties focus primarily on loyalty, whereas trust obligations extend more broadly to the proper administration and management of trust property.
Sources of Reference
Boardman v Phipps [1967] 2 AC 46 (HL).
Keech v Sandford (1726) Sel Cas Ch 61.
Target Holdings Ltd v Redferns [1996] AC 421 (HL).
Foskett v McKeown [2001] 1 AC 102 (HL).
Bristol and West Building Society v Mothew [1998] Ch 1 (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).

​

​Equity and Trust – Joint Tenancy v Tenancy in Common

Introduction

Joint tenancy and tenancy in common are the two principal forms of co-ownership in English land law and equity. Both involve multiple people owning rights in the same property simultaneously, but the nature of their ownership interests differs significantly.

The distinction is extremely important in:

* trusts of land;
* inheritance;
* tracing claims;
* family property disputes;
* and equitable remedies.

The major difference concerns whether the co-owners possess separate identifiable shares and whether their interest automatically passes to surviving co-owners upon death.

⸻

Joint Tenancy

Definition

A joint tenancy exists where co-owners together own:

the whole property collectively.

No individual owner possesses a separate identifiable share.

Each joint tenant is equally entitled to the entire property.

⸻

Main Feature — Right of Survivorship

The defining characteristic of a joint tenancy is:

the right of survivorship
(jus accrescendi).

When one joint tenant dies:

✅ their interest automatically passes to the surviving joint tenants.

The deceased’s share does not pass under:

* a will;
* or intestacy rules.

⸻

Example

Assume:

* Alice and Ben own a house as joint tenants.

The house is worth:

£600,000.

Although there are two owners, neither owns a separate 50% share. Instead, both together own the whole property.

If Alice dies:

✅ Ben automatically becomes sole owner of the entire house.

Even if Alice’s will states that her interest should pass to her children:

❌ the children receive nothing.

⸻

The Four Unities

A valid joint tenancy requires the four unities:

* unity of possession;
* unity of interest;
* unity of title;
* unity of time.

⸻

Unity of Possession

Each joint tenant has equal rights to possess the whole property.

⸻

Unity of Interest

Each possesses the same type and size of interest.

⸻

Unity of Title

Their ownership derives from the same transaction or document.

⸻

Unity of Time

Their interests arise at the same time.

⸻

Advantages of Joint Tenancy

Joint tenancy is often used where parties desire:

* automatic succession;
* simplicity;
* and shared ownership without separate shares.

It is common between:

* spouses;
* civil partners;
* close family members.

⸻

Disadvantages of Joint Tenancy

The right of survivorship may create problems because:

* a deceased owner cannot leave their interest by will;
* family inheritance expectations may be defeated;
* beneficial contributions may not reflect equal ownership.

⸻

Tenancy in Common

Definition

A tenancy in common exists where each co-owner possesses:

a separate identifiable share

in the property.

The shares may be:

* equal;
* or unequal.

⸻

No Right of Survivorship

Unlike joint tenancy:

❌ no automatic survivorship exists.

When a tenant in common dies:

✅ their share passes under:

* their will;
* or intestacy rules.

⸻

Example

Assume:

* Alice owns 40%;
* Ben owns 60%

as tenants in common.

The property is worth:

£1 million.

⸻

Ownership Interests

Alice

Owns:
40%

= £400,000.

⸻

Ben

Owns:
60%

= £600,000.

⸻

Death of Alice

If Alice dies:

✅ her 40% share passes according to her will.

Ben does not automatically inherit Alice’s interest.

⸻

Why Tenancy in Common Is Important

Tenancy in common is particularly important where:

* parties contribute unequal amounts;
* tracing claims create proportional interests;
* commercial investments exist;
* beneficiaries own equitable shares.

⸻

Tenancy in Common in Equity

Equity frequently prefers tenancy in common because it allows recognition of:

* proportional ownership;
* contribution-based shares;
* equitable interests.

⸻

Example in Tracing

Suppose:

* Trust A contributes 40%;
* Trust B contributes 60%

toward purchasing property.

The trusts become:

✅ tenants in common

with proportional beneficial interests.

This principle appeared in Sinclair v Brougham.

⸻

Severance of Joint Tenancy

A joint tenancy may be converted into a tenancy in common through:

severance.

Once severed:

* the right of survivorship disappears;
* separate shares emerge.

⸻

Methods of Severance

Severance may occur through:

* written notice;
* mutual agreement;
* course of dealing;
* or acts inconsistent with joint tenancy.

⸻

Example

Alice and Ben jointly own a house.

Alice serves notice severing the joint tenancy.

They now own the property as:

✅ tenants in common,

usually in equal shares unless otherwise specified.

⸻

Comparison in Practice

Joint Tenancy

* no separate shares;
* survivorship applies;
* equal ownership presumed.

⸻

Tenancy in Common

* separate identifiable shares;
* no survivorship;
* shares may differ proportionately.

⸻

Example With Figures

Joint Tenancy

Property worth:
£800,000.

Owners:
Alice and Ben.

If Alice dies:

✅ Ben automatically owns:
£800,000.

⸻

Tenancy in Common

Property worth:
£800,000.

Alice owns:
25%.

Ben owns:
75%.

If Alice dies:

✅ her £200,000 share passes under her will.

Ben retains only his:
£600,000 share.

⸻

Importance in Equity and Trusts

The distinction is crucial in:

* trusts of land;
* tracing claims;
* inheritance disputes;
* equitable remedies;
* and insolvency.

Equity frequently imposes tenancy in common where fairness requires recognition of proportional ownership interests.

⸻

Key SQE Principles

Joint Tenancy

* one unified ownership;
* survivorship applies;
* no separate shares.

⸻

Tenancy in Common

* separate beneficial shares;
* no survivorship;
* proportional ownership recognised.

⸻

Conclusion

Joint tenancy and tenancy in common represent two fundamentally different forms of co-ownership in English law. Joint tenancy treats co-owners as collectively owning the entire property with survivorship rights, while tenancy in common recognises distinct proportional ownership shares that may pass independently on death. The distinction is particularly important in equity and trust law because tracing claims, proportional contributions, and equitable ownership interests commonly result in co-owners holding property as tenants in common rather than joint tenants.

SQE – Equity and Trust – Mixing of Trust Funds With Funds of Another Innocent Party and the Rule in Roscoe v Winder
Introduction
An important issue in equitable tracing arises where trust funds are mixed not with the trustee’s personal money, but with funds belonging to another innocent party. This may occur where a trustee improperly combines:

• money from two separate trusts;
• trust money with money belonging to another beneficiary;
• or funds belonging to multiple innocent contributors.

In these situations, equity generally treats all innocent contributors equally. Rather than preferring one claimant over another, the courts apply the principle of proportional or pari passu distribution. This reflects equity’s concern with fairness where all contributors are equally innocent and none is personally responsible for the wrongdoing.
However, tracing through mixed accounts is also subject to important limitations, particularly the rule in Roscoe v Winder, which limits tracing claims to the lowest intermediate balance remaining in the account after withdrawals have occurred.


The General Rule: Pari Passu Distribution
The general rule established in cases such as Re Diplock and Foskett v McKeown is that innocent contributors share proportionately in the mixed fund or substitute asset.
This proportional sharing is commonly described as:
pari passu
or:
rateable distribution.
Each innocent contributor therefore receives a proportionate share corresponding to the amount originally contributed to the mixed fund.
The courts refuse to prioritise one innocent claimant over another because all contributors are equally deserving of equitable protection.


Meaning of Pari Passu
“Pari passu” means that innocent contributors share proportionately in:

• profits;
• losses;
• substitute assets;
• and increases in value.

Unlike cases where trustees mix trust funds with their own personal money, no innocent contributor gains priority over another.


Case Scenario
Assume Daniel improperly mixes money belonging to two separate trusts into a single bank account.


Trust A
Contributes:
£200,000.


Trust B
Contributes:
£300,000.


Total Mixed Fund
£500,000.
Daniel then uses the mixed fund to purchase an investment property.
The property later increases in value and becomes worth:
£1 million.
The beneficiaries seek recovery of their respective interests.


Application of the Pari Passu Principle
Since both Trust A and Trust B are innocent contributors, equity treats them equally and allocates ownership proportionately according to their original contributions.


Ownership Shares
Trust A
Contribution:
£200,000
= 40% of the mixed fund.


Trust B
Contribution:
£300,000
= 60% of the mixed fund.


Result
Trust A
Receives:
40%
= £400,000.


Trust B
Receives:
60%
= £600,000.


Tenants in Common
Where innocent contributors elect to take the substitute asset itself, they become:
tenants in common
with ownership shares proportionate to their contributions.
This principle was recognised in Sinclair v Brougham. Each party therefore acquires a separate beneficial interest corresponding to the amount contributed.


Sharing Losses
The pari passu principle also applies where the substitute asset decreases in value.
Suppose the property purchased for:
£500,000
later falls in value to:
£250,000.
The loss is shared proportionately.


Result
Trust A
40%
= £100,000.


Trust B
60%
= £150,000.


Why?
Because equity treats innocent contributors equally in relation to both gains and losses.


The Rule in Roscoe v Winder
An important limitation upon tracing through mixed accounts is the rule in James Roscoe (Bolton) Ltd v Winder.
The rule provides that beneficiaries cannot trace into sums exceeding:
the lowest intermediate balance
remaining in the account after the trust money was mixed.


Meaning of the Rule
Where withdrawals reduce the account balance below the amount originally contributed, equity assumes that trust money has been dissipated to that extent.
Later deposits do not automatically replenish the missing trust money unless:

• the trustee intended specifically to restore the trust funds;
  or
• the later deposits themselves represent traceable proceeds of the original trust property.

Roscoe v Winder Example
Assume:

• trust money of £100,000 is deposited into a mixed account;
• withdrawals reduce the account balance to £20,000;
• the trustee later deposits £80,000 of personal money.

The account balance therefore returns to:
£100,000.
However, under Roscoe v Winder, the beneficiaries may generally trace only into:
✅ £20,000,
because this represented the:
lowest intermediate balance.
The later £80,000 deposit does not automatically restore dissipated trust money.


Relationship Between Pari Passu and Roscoe v Winder
The pari passu principle determines:
✅ how innocent contributors share remaining assets proportionately.
The rule in Roscoe v Winder determines:
✅ the maximum amount still capable of being traced.
Thus, even where innocent contributors share proportionately, their overall recovery may still be limited by depletion of the account balance.


Relationship With Other Tracing Rules
These principles operate alongside other important tracing doctrines.


Re Hallett
Where trustees mix trust funds with personal money, equity presumes that trustees spend personal funds first.


Re Oatway
Where investments are purchased from mixed funds, beneficiaries may trace into the purchased asset.


Roscoe v Winder
Limits tracing to the lowest intermediate balance remaining after withdrawals.


Innocent Contributor Cases
Where all contributors are innocent:
✅ proportional sharing applies.


Practical Importance
These doctrines are highly important in modern tracing litigation involving:

• collective investment schemes;
• pension funds;
• insolvency;
• fraud;
• and mixed trust accounts.

They allow courts to distribute remaining assets fairly while maintaining practical limits upon tracing claims.


Key SQE Principles
Innocent Contributors
Where trust funds are mixed with money belonging to another innocent party:
✅ pari passu distribution applies.


Roscoe v Winder
Tracing claims are limited to:
✅ the lowest intermediate balance.


Tenancy in Common
Innocent contributors may become:
✅ tenants in common
with proportional ownership shares.


Sources of Reference 
Cases
Foskett v McKeown [2001] 1 AC 102 (HL).
James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62.
Re Diplock [1948] Ch 465.
Sinclair v Brougham [1914] AC 398 (HL).
Books
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).
Conclusion
Where trust funds are mixed with funds belonging to another innocent party, equity generally applies proportional or pari passu distribution so that all innocent contributors share fairly in both gains and losses. Where substitute assets are purchased, the parties may become tenants in common with ownership shares proportionate to their contributions. However, tracing rights remain subject to important limitations such as the rule in Roscoe v Winder, which restricts recovery to the lowest intermediate balance remaining after withdrawals from the mixed account. Together, these doctrines form a central part of modern equitable tracing law and demonstrate equity’s attempt to balance fairness, proprietary protection, and practical financial realities.

Equity and Trust – Mixing of Trust Funds and Trustee’s Funds
Introduction
A common issue in equitable tracing arises where a trustee wrongfully mixes trust money with personal funds in a bank account or uses the mixed fund to purchase assets. Equity recognises that beneficiaries should not lose their proprietary rights merely because trust money has been combined with the trustee’s own money. As a result, the beneficiaries may continue tracing into the mixed fund or into substitute assets purchased with it.
The law in this area aims to protect beneficiaries while preventing trustees from benefiting from their own wrongdoing. Equity therefore provides beneficiaries with several powerful proprietary remedies, including the right to claim a charge over the mixed fund or asset, or alternatively to claim ownership of the asset itself or a proportional share in it.


The Basic Rule
The general rule is that where a trustee mixes trust funds with personal money, the beneficiary may trace:

• into the mixed fund itself;
• or into any asset purchased using the mixed fund.

This principle was established in Re Hallett’s Estate.
The claimant may obtain:
✅ an equitable charge over the fund or asset
for the amount of trust money used.
This gives the beneficiary security over the property and allows enforcement against the asset itself.


Case Scenario
Assume Daniel is trustee of the Carter Family Trust.
Daniel wrongfully removes:
£200,000
from the trust and mixes it with:
£300,000
of his own personal money in a bank account.
The mixed fund totals:
£500,000.
Daniel then uses the mixed money to purchase shares worth:
£500,000.
The shares later increase in value and become worth:
£1 million.
The beneficiaries seek recovery.


The Beneficiary’s Proprietary Rights
Equity allows the beneficiaries to trace their trust money into the purchased shares because the shares represent substitute property acquired using the mixed fund.
The beneficiaries may therefore seek proprietary remedies against the shares.


Equitable Charge
One possible remedy is an:
equitable charge
(or equitable lien).
This secures repayment of the trust money used in acquiring the asset.


Example
Trust Money Used
£200,000.


Shares Purchased
£500,000.


Shares Later Worth
£1 million.


Result
The beneficiaries may obtain:
✅ a charge securing repayment of £200,000,
plus potentially interest.
The beneficiaries become:
✅ secured creditors
to the extent of the charge.


Importance of the Charge
The equitable charge gives the beneficiaries significant advantages.
They may:

• force sale of the asset;
• recover directly from sale proceeds;
• and obtain priority over unsecured creditors.

This becomes particularly important if the trustee becomes insolvent or bankrupt.
Because the beneficiaries possess a proprietary security interest, they rank ahead of ordinary unsecured creditors.


Taking the Asset Itself
An alternative remedy is that the beneficiaries may elect to take:
✅ the asset itself;
or
✅ a proportionate share in the asset.
This principle was recognised in:

• Re Tilley’s Will Trusts
• Foskett v McKeown

This remedy is particularly attractive where the asset has increased significantly in value.


Proportionate Share of the Asset
If the beneficiaries contributed only part of the purchase price, they may claim a proportional ownership share corresponding to the amount of trust money used.


Example
Trust Contribution
£200,000.


Total Purchase Price
£500,000.


Beneficial Share
The trust money funded:
40%
of the purchase.


Asset Value Later
£1 million.


Result
The beneficiaries may claim:
✅ 40% ownership of the shares
worth:
£400,000.
This may be far more valuable than merely recovering the original:
£200,000.


Foskett v McKeown
The leading authority is Foskett v McKeown.
In that case, the trustee wrongfully used trust money to pay premiums on a life insurance policy benefiting his children. After the trustee’s death, the policy paid out approximately:
£1 million.
The House of Lords held that the beneficiaries could trace into the insurance proceeds proportionately according to the amount of trust money used to pay the premiums.
Lord Millett explained that where trust money contributes to the acquisition of an asset, the beneficiary may choose either:

• a proportionate share of the asset;
  or
• an equitable lien securing repayment.

Backward Tracing
An important modern development occurred in Brazil v Durant International Corporation.
The Privy Council suggested that:
✅ backward tracing
may be possible.


Meaning of Backward Tracing
Traditional tracing usually requires:

• trust money to move first;
• followed by acquisition of the asset.

Backward tracing allows tracing even where:

• the debit appears before the credit;
• provided the transactions formed part of a coordinated scheme.

Why This Matters
Modern banking systems allow rapid and complex movement of funds. Criminals can deliberately manipulate account timing to disguise the connection between transactions.
The Privy Council recognised that tracing should not fail merely because:

• banking transactions occur non-chronologically.

Example of Backward Tracing
Suppose Daniel contracts to purchase property using temporary borrowing.
One day later, he transfers misappropriated trust money into the account to repay the borrowing.
Under traditional tracing rules, tracing may fail because the property purchase occurred before receipt of the trust money.
However, under backward tracing principles, the court may still permit tracing if the transactions formed part of one coordinated scheme.


Importance of Brazil v Durant
The case reflects the courts’ increasing willingness to adapt equitable tracing principles to modern financial realities and sophisticated fraud structures.
Although the decision came from the Privy Council and is therefore not formally binding in England, it remains highly persuasive and influential.


Relationship With Other Tracing Rules
This area operates alongside several important tracing doctrines.


Re Hallett
Presumes trustees spend personal money first.


Re Oatway
Allows beneficiaries to trace into investments purchased from mixed funds where the remaining balance has been dissipated.


Roscoe v Winder
Limits tracing claims to the lowest intermediate balance remaining in an account.


Foskett v McKeown
Allows proportional proprietary ownership of substitute assets and increases in value.


Practical Importance
These principles are highly important in cases involving:

• fraud;
• mixed bank accounts;
• investment assets;
• insolvency;
• fiduciary wrongdoing;
• and asset recovery litigation.

They ensure that trustees cannot defeat proprietary claims merely by mixing trust money with personal funds.


Key SQE Principles
Where trust funds are mixed with the trustee’s own funds:
✅ beneficiaries may trace into the mixed fund or substitute asset.
They may choose between:

• an equitable charge securing repayment;
  or
• a proportional ownership share in the asset itself.

If the asset increases in value, beneficiaries may share proportionately in the increase.


Conclusion
Where trustees mix trust funds with personal money, equity protects beneficiaries by allowing tracing into the mixed fund and substitute assets purchased from it. Beneficiaries may obtain either an equitable charge securing repayment or a proportionate proprietary share of the asset itself, including any increase in value. Modern developments such as backward tracing further demonstrate equity’s willingness to adapt tracing principles to contemporary financial realities and sophisticated fraud structures. Together, these doctrines form a central part of modern equitable proprietary remedies and tracing law.
Sources of Reference
Foskett v McKeown [2001] 1 AC 102 (HL).
Brazil v Durant International Corporation [2015] 3 WLR 599 (PC).
Re Hallett’s Estate (1880) 13 Ch D 696 (CA).
Re Tilley’s Will Trusts [1967] Ch 1179.
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).

​

Equity and Trust – Proprietary Remedies v Personal Remedies
Case Scenario
The trustees of the Walker Family Trust manage:
£5 million
for several beneficiaries.
One trustee, Daniel, improperly removes:
£1 million
from the trust in breach of trust.
Daniel uses the money in two different ways:

• £600,000 is used to purchase a luxury apartment;
• £400,000 is spent on holidays, gambling, and entertainment.

The apartment later increases in value to:
£1.5 million
Daniel later becomes bankrupt.
The beneficiaries wish to recover their losses and must decide whether proprietary remedies or personal remedies provide the better solution.


Introduction
Equity provides two broad categories of remedies:

1. proprietary remedies;
2. personal remedies.

Both aim to protect beneficiaries and respond to breaches of trust, but they operate very differently.
The distinction is one of the most important concepts in equity and trust law.


Proprietary Remedies
Definition
A proprietary remedy gives the claimant rights over:

• specific property;
• substitute assets;
• traceable proceeds;
• or assets representing the trust property.

The remedy attaches directly to the property itself.


Examples of Proprietary Remedies
These include:

• tracing;
• constructive trusts;
• equitable liens;
• subrogation.

Application to the Scenario
Daniel used:
£600,000
to buy a luxury apartment.
The apartment now worth:
£1.5 million
remains identifiable property.
The beneficiaries may therefore trace into the apartment and assert a proprietary claim.


Result
The beneficiaries may recover:
✅ the apartment itself worth £1.5 million.


Why Proprietary Remedies Are Powerful
Proprietary remedies are usually considered stronger because they give claimants:

• direct rights over property;
• priority during insolvency;
• benefit of increases in value.

Increase in Value
Suppose trust money purchased an asset that later becomes more valuable.
The beneficiaries usually gain:
✅ the increase in value.


Example
Original Trust Money Used
£600,000


Current Asset Value
£1.5 million


Proprietary Recovery
✅ £1.5 million.


Insolvency Advantage
Daniel later becomes bankrupt.
Because the beneficiaries possess a proprietary claim:

• the apartment is treated as trust property;
• it does not form part of Daniel’s personal estate.

Therefore the beneficiaries obtain priority over ordinary creditors.


Why This Matters
Ordinary unsecured creditors may receive little or nothing during bankruptcy.
However, proprietary claimants recover:
✅ directly from the asset itself.


Personal Remedies
Definition
A personal remedy creates:
personal liability against the defendant.
The claimant receives a court order requiring the defendant personally to compensate or repay losses.


Examples of Personal Remedies
These include:

• equitable compensation;
• account of profits;
• dishonest assistance liability;
• knowing receipt claims.

Application to the Scenario
Daniel spent:
£400,000
on:

• holidays;
• gambling;
• entertainment.

The money has been dissipated.
No identifiable property remains.
Therefore:
❌ tracing fails.
The beneficiaries must rely upon:
✅ equitable compensation.


Result
The court may order Daniel personally to pay:
£400,000.


Weakness of Personal Remedies
Personal remedies depend upon:

• the defendant’s solvency;
• personal wealth;
• ability to pay.

Insolvency Problem
Daniel is bankrupt.
Therefore:

• even though the court awards compensation,
• beneficiaries may recover little or nothing.

Why Proprietary Remedies Are Usually Better
Proprietary remedies are often preferred because they:
✅ survive insolvency;
✅ attach directly to assets;
✅ allow recovery of increased asset values;
✅ provide priority over unsecured creditors.


Example Comparison
Proprietary Claim
Trust money used to buy apartment.
Original amount:
£600,000
Apartment now worth:
£1.5 million


Recovery
✅ £1.5 million.


Personal Claim
Trust money dissipated on holidays.
Original amount:
£400,000


Recovery
Court awards:
£400,000 equitable compensation.
But Daniel is bankrupt.


Actual Recovery
Possibly:
❌ very little.


However Proprietary Remedies Also Have Limitations
Proprietary remedies require:
✅ identifiable property.
If property is dissipated:
❌ proprietary recovery fails.


Example
Money spent on:

• restaurant meals;
• holidays;
• gambling.

No substitute property exists.
Therefore:
❌ tracing impossible.


Personal Remedies Become Essential
Where tracing fails, personal remedies may be the only available solution.


Flexibility of Personal Remedies
Personal remedies may sometimes operate even where proprietary remedies cannot.
For example:

• dishonest assistants;
• negligent fiduciaries;
• knowing recipients

may face personal liability despite absence of traceable property.


Example
A solicitor dishonestly assists a breach of trust but never receives the trust property.
The beneficiaries cannot trace against the solicitor.
However:
✅ personal liability for dishonest assistance may arise.


Proprietary Remedies and Third Parties
Proprietary remedies may affect innocent third parties.
This creates fairness concerns.


Example
Suppose an innocent volunteer receives trust property and spends money renovating their family home.
Tracing into the home may produce harsh outcomes.
Courts may therefore limit proprietary recovery.


Personal Remedies and Fairness
Personal remedies may sometimes be viewed as fairer because they:

• compensate loss;
• avoid disruption to innocent third parties;
• operate more flexibly.

Key Distinction
Proprietary Remedies
Focus on:
ownership and recovery of property.


Personal Remedies
Focus on:
compensation and personal liability.


Which Remedy Is Better?
Usually Proprietary Remedies
because they provide:

• stronger protection;
• insolvency priority;
• recovery of asset increases.

But Not Always
Personal remedies may be preferable where:

• property is dissipated;
• tracing fails;
• no identifiable assets remain;
• third-party assistance occurred.

Key SQE Principle
Claimants often pursue:
✅ both proprietary and personal remedies simultaneously
until the court determines the most appropriate recovery.
However:
❌ double recovery is prohibited.


Example of Combined Claims
The beneficiaries may seek:

• tracing into the apartment;
• equitable compensation for dissipated funds;
• account of profits;
• dishonest assistance claims.

The court then ensures no duplicated compensation occurs.


Conclusion
Proprietary remedies and personal remedies serve different functions within equity and trust law. Proprietary remedies are generally considered more powerful because they attach directly to identifiable property, survive insolvency, and allow claimants to recover increases in asset value. However, they depend upon the continued existence of traceable property. Personal remedies, by contrast, impose liability directly upon the defendant and remain essential where property has been dissipated or tracing is impossible. In practice, equitable claimants often pursue both forms of remedy together in order to maximise protection and recovery.

​

Equity and Trust – Actual Notice, Implied Notice and Constructive Notice
Case Scenario
The trustees of the Lewis Family Trust hold a rare painting worth:
£800,000
for the beneficiaries.
One trustee, Daniel, improperly sells the painting in breach of trust.
Three different purchasers become involved:

• Michael buys the painting after Daniel directly tells him the painting belongs to the trust.
• Sarah purchases the painting through her agent, who knows the painting was trust property.
• Emma purchases the painting cheaply despite highly suspicious circumstances and fails to investigate further.

The court must determine:

• whether each purchaser had notice of the breach;
• and whether they can rely on the defence of bona fide purchaser for value without notice.

Meaning of Notice
In equity, “notice” refers to knowledge or awareness of facts affecting property rights or legal interests.
Notice is important because it determines whether a person:

• acts innocently;
• becomes liable as a knowing recipient;
• or loses protection as a bona fide purchaser.

Three Main Types of Notice
Notice may be:

1. actual notice;
2. implied notice;
3. constructive notice.

1. Actual Notice
Definition
Actual notice means:
direct personal knowledge of the relevant facts.
The person genuinely knows about:

• the breach of trust;
• equitable interest;
• or wrongdoing.

Examples of Actual Notice
A person:

• is directly told about the trust;
• reads documents showing the breach;
• personally observes the wrongdoing.

Application to the Scenario
Daniel directly tells Michael:
“The painting belongs to the trust, but I am selling it secretly.”
Michael therefore has:
✅ actual notice.


Legal Consequence
Michael cannot claim protection as a bona fide purchaser because:

• he knowingly purchased trust property transferred in breach of trust.

The beneficiaries may potentially:

• trace the painting;
• recover proprietary rights;
• sue personally.

Example With Figures
Painting Value
£800,000


Michael Purchases Painting
For:
£800,000
with actual knowledge of breach.


Result
Beneficiaries may recover:
✅ the painting itself.


2. Implied Notice
Definition
Implied notice arises where:
knowledge possessed by an agent is attributed to the principal.
In other words:

• the law treats the principal as knowing what the agent knows.

Agency Relationship
This commonly occurs where:

• solicitors;
• financial advisers;
• estate agents;
• company officers

possess relevant information while acting for another person.


Application to the Scenario
Sarah purchases the painting through her art adviser.
The adviser knows:

• the painting belongs to the trust;
• the sale breaches trust obligations.

That knowledge is attributed to Sarah.
Therefore Sarah has:
✅ implied notice.


Why?
Because the agent’s knowledge is legally treated as the principal’s knowledge.


Legal Consequence
Sarah may lose protection as a bona fide purchaser despite not personally knowing about the breach.


Example With Figures
Painting Purchased Through Agent
£800,000


Agent Knows of Breach
Knowledge attributed to Sarah.


Result
Beneficiaries may potentially recover:
✅ the painting.


3. Constructive Notice
Definition
Constructive notice means:
knowledge the person ought reasonably to have acquired through proper inquiry or investigation.
The person may not actually know the truth, but suspicious circumstances exist.


Key Principle
A reasonable person would:

• investigate further;
• ask questions;
• examine documents;
• or suspect wrongdoing.

Failure to do so may amount to constructive notice.


Application to the Scenario
Emma purchases the painting for:
£100,000
even though it is clearly worth:
£800,000
Daniel behaves suspiciously and insists on immediate payment in cash.
Emma asks no questions.


Likely Result
The court may conclude:

• suspicious circumstances existed;
• a reasonable purchaser would have investigated;
• Emma therefore had constructive notice.

Legal Consequence
Emma may lose bona fide purchaser protection because she ought reasonably to have known of the breach.


Example With Figures
Market Value
£800,000


Purchase Price
£100,000


Suspicious Circumstances

• urgent sale;
• unusually low price;
• no ownership documents.

Result
Constructive notice likely established.


Why Notice Matters
Notice determines whether a purchaser is:
Bona Fide Purchaser
Protected from tracing claims.


Knowing Recipient
Potentially liable personally and proprietarily.


Summary of the Three Types
Actual Notice
Direct personal knowledge.


Implied Notice
Knowledge attributed through an agent.


Constructive Notice
Knowledge the person ought reasonably to have acquired.


Key SQE Principle
A purchaser loses equitable protection if they possess:

• actual notice;
• implied notice;
• or constructive notice

of the breach of trust or equitable interest.


Practical Comparison
Michael
Directly informed.
→ actual notice.


Sarah
Agent knew.
→ implied notice.


Emma
Ignored suspicious circumstances.
→ constructive notice.


Conclusion
Actual notice involves direct personal knowledge, implied notice arises where knowledge is attributed through an agent, and constructive notice exists where a person ought reasonably to have discovered the relevant facts through proper inquiry. These concepts are central in equity because they determine whether a person may rely on the defence of bona fide purchaser for value without notice or instead become subject to equitable liability and tracing claims.

​

Equity and Trust – Bona Fide Purchaser for Value Without Notice


Case Scenario


The trustees of the Carter Family Trust hold:


£8 million


for several beneficiaries.


One trustee, Daniel, improperly removes a valuable painting from the trust collection worth:


£500,000


Daniel secretly sells the painting to an art dealer, Michael.


Michael:

• pays full market value;

• genuinely believes Daniel owns the painting personally;

• has no knowledge of the breach of trust;

• has no actual, implied, or constructive notice of wrongdoing.

Daniel deposits the:


£500,000


sale proceeds into his personal bank account and later uses the money to purchase shares.


The beneficiaries seek recovery of the painting and compensation for the breach.


The court must determine:

• whether Michael is protected as a bona fide purchaser for value without notice;

• whether tracing into the painting is possible;

• and whether the beneficiaries may instead trace into the sale proceeds.

⸻


Bona Fide Purchaser for Value Without Notice


Definition


A bona fide purchaser for value without notice is:


a third party who acquires property in good faith, provides consideration, and has no knowledge of the breach of trust or fiduciary wrongdoing.


This person is traditionally known as:


“equity’s darling.”


⸻


Requirements


The purchaser must:


1. Act Bona Fide


Meaning:

• honestly;

• genuinely;

• without fraud or bad faith.

⸻


2. Provide Value


The purchaser must give consideration.


Examples include:

• money;

• property;

• contractual payment.

⸻


3. Lack Notice


The purchaser must not possess:

• actual notice;

• implied notice;

• constructive notice.

⸻


Application to the Scenario


Michael:

• paid full value;

• acted honestly;

• had no knowledge of the breach.

Therefore, Michael is likely a bona fide purchaser for value without notice.


⸻


Tracing Rule


General Principle


Trust property cannot be traced into the hands of a bona fide purchaser for value without notice.


The purchaser takes the property free from the beneficiaries’ equitable interests.


⸻


Why?


Equity prioritises:

• commercial certainty;

• protection of innocent purchasers;

• security of transactions.

⸻


Application to the Scenario


The beneficiaries cannot recover:


❌ the painting from Michael.


Michael acquires good title despite Daniel’s breach of trust.


⸻


Alternative Tracing


Although tracing into the painting fails, the beneficiaries may instead trace into:


✅ the sale proceeds received by Daniel.


⸻


Example With Figures


Trust Painting Value


£500,000


⸻


Sale to Michael


£500,000


⸻


Daniel Uses Proceeds to Buy Shares


Shares later increase in value to:


£750,000


⸻


Beneficiaries’ Rights


The beneficiaries cannot recover:


❌ the painting from Michael.


However, they may trace into:


✅ the shares worth £750,000.


⸻


Why?


Because the trust’s equitable interest survives in the substitute property received by Daniel.


⸻


Important Principle


The defence completely extinguishes the beneficiaries’ equitable interest in the asset transferred to the bona fide purchaser.


⸻


Consequence


Once property reaches a bona fide purchaser:

• proprietary tracing against that asset ends;

• the equitable interest is overridden.

⸻


Contrast With Innocent Volunteer


Bona Fide Purchaser

• gives value;

• protected completely.

⸻


Innocent Volunteer

• gives no value;

• may still face tracing claims.

⸻


Contrast With Knowing Recipient


Knowing Recipient

• possesses knowledge;

• may face proprietary and personal liability.

⸻


Bona Fide Purchaser

• no knowledge;

• fully protected.

⸻


Importance in Equity


The doctrine protects:

• transactional certainty;

• commercial reliability;

• innocent market participants.

Without the doctrine:

• buyers would constantly fear hidden equitable claims.

⸻


Example of Notice


Actual Notice


Michael is directly informed that the painting belongs to the trust.


⸻


Constructive Notice


Suspicious circumstances would cause a reasonable purchaser to investigate further.


⸻


If Michael Had Notice


If Michael knew or ought reasonably to have known about the breach:


❌ the defence would fail.


The beneficiaries could potentially:

• trace the painting;

• recover proprietary interests;

• sue personally.

⸻


Key SQE Principles


A bona fide purchaser for value without notice:

• acquires good title;

• defeats equitable proprietary claims;

• cannot generally be traced against.

However:

• tracing may continue into substitute property received by the trustee.

⸻


Example Summary With Figures


Original Trust Asset


Painting worth:
£500,000


⸻


Purchased Innocently


By Michael for:
£500,000


⸻


Trust Cannot Recover


❌ the painting.


⸻


Trustee Purchases Shares


Shares now worth:
£750,000


⸻


Beneficiaries May Recover


✅ shares worth £750,000 through tracing into substitute assets.


⸻


Conclusion


The bona fide purchaser for value without notice occupies a privileged position in equity because the doctrine protects innocent purchasers who acquire property honestly, for value, and without notice of wrongdoing. Once trust property passes into the hands of such a purchaser, proprietary tracing against that asset is defeated. However, beneficiaries may continue tracing into substitute property or sale proceeds received by the trustee or fiduciary responsible for the breach.

Equity and Trust – Third Parties to the Trust
Case Scenario
The trustees of the Bennett Family Trust manage:
£12 million
for several beneficiaries.
One trustee, Daniel, improperly removes trust property in breach of trust, including:

• cash worth £1 million;
• a rare painting worth £500,000;
• shares worth £700,000.

Daniel transfers the assets to several third parties under different circumstances:

• Michael purchases the painting honestly and pays full value.
• Alice receives £200,000 as a gift without knowledge of the breach.
• Sarah receives £300,000 knowing the money came from the trust.
• A solicitor, James, helps Daniel conceal the transfers dishonestly.

The beneficiaries wish to recover the trust assets and determine which third parties may be liable.
The court must examine:

• whether tracing is possible;
• whether proprietary remedies exist;
• whether personal liability arises;
• and what rights beneficiaries possess against third parties.

Third Parties to the Trust
General Principle
Trust property may be traced not only into the hands of:

• trustees;
• fiduciaries;
• or wrongdoers,

but also into the hands of:
third parties who subsequently receive the property.


Why This Matters
If tracing were limited only to trustees:

• trust property could easily be hidden or dissipated;
• beneficiaries would lose effective protection.

Equity therefore allows tracing into the hands of certain third parties.


Main Issue
The claimant’s rights depend on:

• the third party’s knowledge;
• whether value was given;
• whether the recipient acted honestly;
• and whether tracing remains possible.

Categories of Third Parties
There are four main categories:

1. bona fide purchaser for value without notice;
2. innocent volunteer;
3. knowing recipient;
4. dishonest assistant.

1. Bona Fide Purchaser for Value Without Notice
Definition
A third party who:

• provides consideration;
• acts honestly;
• and has no notice of the breach.

This person is often called:
“equity’s darling.”


Application to the Scenario
Michael purchases the painting worth:
£500,000
honestly and for full market value.
He has:

• no actual notice;
• no implied notice;
• no constructive notice.

Tracing Rule
❌ tracing into Michael’s hands is not possible.
The beneficiaries lose proprietary rights over the painting.


Alternative Recovery
The beneficiaries may instead trace into:
✅ the sale proceeds received by Daniel.


Example With Figures
Painting Sold
£500,000


Daniel Uses Sale Money to Buy Shares
Shares later worth:
£900,000


Beneficiaries May Recover
✅ shares worth £900,000.


2. Innocent Volunteer
Definition
A third party who:

• provides no consideration;
• and lacks knowledge of the breach.

Application to the Scenario
Alice receives:
£200,000
as a gift.
She has no knowledge of wrongdoing.


Tracing Rule
✅ tracing is generally possible.
The beneficiaries may recover:

• the original property;
• or substitute property.

Limitation
Recovery may be refused where tracing would produce:
inequitable results.


Example
Alice spends:
£150,000
renovating her home believing the money was genuinely hers.
The court may reduce recovery using:

• change of position principles.

3. Knowing Recipient
Definition
A third party who receives trust property with knowledge of the breach.


Application to the Scenario
Sarah receives:
£300,000
knowing it came from trust property transferred improperly.


Rights Against Sarah
The beneficiaries may claim:
✅ proprietary remedies
AND
✅ personal remedies.


Why?
Sarah becomes:
a constructive trustee.


Example With Figures
Sarah Invests the £300,000
Investment later worth:
£600,000


Beneficiaries May Recover
✅ the investment itself worth £600,000
OR
✅ personal compensation.


4. Dishonest Assistant
Definition
A third party who dishonestly assists a breach of trust.
Receipt of trust property is unnecessary.


Application to the Scenario
James the solicitor:

• prepares false documents;
• conceals transfers;
• facilitates the breach.

He never personally receives trust money.


Liability
James faces:
✅ personal liability only.


No Proprietary Remedy
Because:
❌ he never received the trust property.


Example With Figures
Suppose the trust suffers unrecoverable losses of:
£400,000
James may be personally liable to compensate the trust for losses caused by his dishonest assistance.


Tracing Into Third Parties
General Rule
Tracing depends on:

• continuing proprietary interest;
• recipient status;
• knowledge and fairness.

Key Distinction
Bona Fide Purchaser
Tracing defeated.


Innocent Volunteer
Tracing generally available.


Knowing Recipient
Tracing plus personal liability.


Dishonest Assistant
Personal liability only.


Proprietary and Personal Remedies
Proprietary Remedies
Focus on:

• recovering property itself.

Examples:

• tracing;
• constructive trusts;
• equitable liens.

Personal Remedies
Focus on:

• compensation against individuals.

Examples:

• equitable compensation;
• dishonest assistance claims;
• account of profits.

Why Third-Party Liability Is Important
Third-party liability prevents trustees from escaping accountability by transferring assets to others.
Equity therefore protects beneficiaries by extending remedies beyond the trustee alone.


Key SQE Principles
Third-party liability depends on:

• receipt of property;
• notice or knowledge;
• honesty;
• whether value was provided.

Equity carefully balances:

• protection of beneficiaries;
• fairness to innocent recipients;
• commercial certainty.

Conclusion
Equity allows tracing not only into the hands of trustees but also into the hands of third parties who receive trust property. The claimant’s rights depend heavily upon the status of the third party, particularly whether the person acted honestly, provided value, or possessed knowledge of the breach. Bona fide purchasers receive strong protection, while innocent volunteers, knowing recipients, and dishonest assistants may face varying forms of proprietary and personal liability. These doctrines collectively ensure both protection of beneficiaries and fairness within commercial and fiduciary relationships.

​

Equity and Trust – Loss of the Right to Trace
Case Scenario
The trustees of the Mason Family Trust manage:
£15 million
for several beneficiaries.
One trustee, Daniel, improperly removes:
£2 million
from the trust in breach of trust.
Daniel uses the money in several different ways:

• £500,000 is spent on luxury holidays, restaurants, and gambling;
• £700,000 is used to purchase a rare car which is later sold to an innocent purchaser;
• £300,000 is gifted to Alice, an innocent volunteer, who spends most of the money renovating her home;
• £500,000 remains in Daniel’s investment account and grows to £900,000.

The beneficiaries seek to trace and recover the trust assets.
The court must determine:

• which assets remain traceable;
• where tracing rights have been lost;
• and whether personal remedies remain available.

Loss of the Right to Trace
General Principle
Tracing allows beneficiaries to follow trust property into:

• substitute assets;
• mixed funds;
• third-party hands.

However, tracing rights are not unlimited.


Main Rule
The right to trace may be lost in three main situations:

1. dissipation of property;
2. transfer to a bona fide purchaser for value without notice;
3. inequitable tracing against innocent recipients.

Why This Matters
Tracing is a:
✅ proprietary remedy.
If tracing succeeds, the claimant obtains rights:

• over the property itself;
• or substitute assets.

This places the claimant in a stronger position than an ordinary unsecured creditor.


Personal v Proprietary Rights
Proprietary Right (In Rem)
Attaches to:

• specific property;
• substitute assets;
• identifiable funds.

Personal Right (In Personam)
Attaches to:

• the individual wrongdoer personally.

Usually involves:

• equitable compensation;
• personal liability.

Why Proprietary Rights Are Stronger
If the trustee becomes:

• bankrupt;
• insolvent;
• or lacks personal wealth,

a proprietary claim may still succeed against identifiable property.


1. Dissipation of Property
Definition
Tracing fails where trust property is no longer identifiable.
This is called:
dissipation.


Re Diplock
Lord Greene explained:
equitable tracing requires continued existence of the property:

• as a separate fund;
• mixed fund;
• or substitute asset.

If the property no longer exists:
❌ tracing fails.


Application to the Scenario
Daniel spends:
£500,000
on:

• holidays;
• restaurants;
• gambling;
• luxury entertainment.

Result
The money has been consumed and no identifiable asset remains.
Therefore:
❌ tracing is impossible.


Why?
A restaurant meal or holiday leaves:

• no continuing property;
• no substitute asset;
• nothing identifiable to recover.

Example With Figures
Trust Money Taken
£500,000


Spent on Dissipated Expenses

• holidays;
• gambling;
• food.

Result
❌ no tracing possible.


Alternative Remedy
The beneficiaries may still sue Daniel personally for:
✅ equitable compensation.


Problem
If Daniel becomes bankrupt:
❌ personal recovery may be worthless.


2. Bona Fide Purchaser for Value Without Notice
Definition
Tracing also ends where trust property reaches:
a bona fide purchaser for value without notice.


Why?
Equity protects innocent purchasers who:

• act honestly;
• provide value;
• lack notice of the breach.

Application to the Scenario
Daniel purchases a rare car using:
£700,000
of trust money.
He later sells the car to Michael.
Michael:

• pays full market value;
• acts honestly;
• has no notice of wrongdoing.

Result
❌ beneficiaries cannot trace into the car.
Michael acquires good title.


However
The beneficiaries may still trace into:
✅ the sale proceeds received by Daniel.


Example With Figures
Car Purchased
£700,000


Sold to Michael
£850,000


Daniel Invests Sale Proceeds
Investment account now worth:
£1 million


Beneficiaries May Trace Into
✅ investment account worth £1 million.


3. Inequitable Tracing Against Innocent Third Parties
Definition
Tracing may also fail where recovery would produce:
inequitable results.


Application to the Scenario
Daniel gifts:
£300,000
to Alice.
Alice:

• innocently receives the money;
• spends £250,000 renovating her family home.

Problem
The renovations:

• may not proportionately increase property value;
• may be inseparable from the home.

If tracing forced sale of Alice’s home:

• severe hardship could result.

Result
The court may decide:
❌ tracing would be inequitable.


Change of Position
Alice may also rely on:
✅ change of position defence.


Example With Figures
Original Gift
£300,000


Reliance Expenditure
£250,000


Remaining Recoverable Amount
Possibly only:
£50,000


Why?
Because Alice changed her position innocently in reliance on the gift.


Property Still Traceable
Not all tracing rights are lost.


Application to the Scenario
Daniel retains:
£500,000
in his investment account.
The investments increase to:
£900,000


Result
The beneficiaries may:
✅ trace into the investment account;
✅ recover the increased value.


Why?
The property remains:

• identifiable;
• traceable;
• and connected to the trust funds.

Practical Summary With Figures
Dissipated Funds
£500,000
❌ tracing lost.


Car Sold to Bona Fide Purchaser
£700,000
❌ tracing against purchaser lost.


Innocent Volunteer Renovations
£250,000
❌ tracing may be inequitable.


Investment Account
£900,000
✅ tracing succeeds.


Key SQE Principles
Tracing rights may be lost where:

• property is dissipated;
• transferred to bona fide purchasers;
• or tracing would be inequitable.

However:

• personal remedies may still survive against the trustee or wrongdoer.

Importance of Proprietary Claims
Proprietary claims are especially valuable because they:

• survive insolvency;
• attach to assets directly;
• allow recovery of increases in value.

Conclusion
The right to trace is a powerful equitable mechanism allowing beneficiaries to recover trust property and substitute assets. However, tracing will cease where property has been dissipated, transferred to a bona fide purchaser for value without notice, or where tracing against innocent recipients would be inequitable. Even when tracing fails, claimants may still pursue personal remedies such as equitable compensation, although these remedies may be less effective if the wrongdoer lacks assets or becomes insolvent.

​