In the administration of a trust, the trustee is the one that assumes a range of duties and responsibilities. When a breach of trust occurs, the trustee might be liable for both acts of omission and commission. There are several ways a beneficiary can pursue remedies for a breach of duty on the behalf of the trustee. Tracing is one of them. Even if not exactly a proper remedy, tracing is the process "which indentifies any trust property that has passed into the hands of a recipient in breach of trust".
The beneficiary is thereby able to pursue a remedy that enforces his ownership of the property. There are two ways for the beneficiary to recover the lost property caused by the breach of duty of the trustee. A beneficiary may "follow" the specific property into the hand of the recipient and thereby seek a return, but only if it can be identified as the same asset. Otherwise, a substitution of the original property may be traced.
Historically, there were two set of rules that applied to the process of tracing: at common law and in equity. They are still in force today. Judges and commentators feel that the law has failed to develop a single unified set of rules when it comes to tracing. Incidentally, Lord Millet said that "There is no sense in maintaining different rules for tracing at law and in equity. One set of tracing rules is enough".
[...] Tracing the property is easy when the money has been invested in shares or channeled into the purchase of property for the wrongdoer. The beneficiary is able to claim either the property itself or a charge on the property for the money expended in the purchase, such as in Sinclair v Brougham[4] where the costumers ranked on “pari passu” (equal footing) with the shareholders because of the fiduciary relationship between the building society and them. However, when dealing with money that has been placed in a mixed bank account and mingled with other funds, difficulties arise. [...]
[...] In the rules of tracing at common law, there is an evidential problem. When a claim is faced with an evidential difficulty as to whether or not the property was mixed with another, the solution should be found in the rules of equity tracing. This proposition is supported by two arguments. The first one is concerned with the nature of tracing. Tracing is a process, so it should be neutral as to rights. No condition should intervene in the process of identifying the property. [...]
[...] By his duality, the process of tracing has raised some issues as to the relevance of two different sets of rules: at law and in equity. The two are complementary, and found their reason to exist in the historical evolution of the law of trust. However, they complicate the application of the process of tracing, and so it has been established that set of tracing rules is enough”[10] . Three solutions have been offered in order to make a unitary law of tracing, and the third one exposed seems to present more advantages. [...]
[...] When the property is conserved in the same asset and simply passes from hand to hand or substituted in another property, there is no difficulty in tracing it. Lord Ellenborough in Taylor v Plumer said: “money in a bag or otherwise kept apart from other money”. In the case Banque Belge for Etranger v Hambrouck[2], the plaintiff was able to identify his property, because it had only been transferred from one account to another, without being mixed with other funds. [...]
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