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".
[...] HaHWhen dealing with funds mixed with other money, as in a single bank account, tracing at common law becomes impossible. In the case Agip (Africa) Ltd v Jackson[3], the plaintiff sought to recover the money oil the basis of money had and received. The common law remedy of tracing was not available, because the origin of the money could not be identified. It was impossible to follow the physical asset from one recipient with another. Only identifiable tangible property is traceable at common law. [...]
[...] However, when dealing with money that has been placed in a mixed bank account and mingled with other funds difficulties arise. In order to deal with the problem, we have to refer to jurisprudential rules. The rule in the case Re Hallett's Estate[5] applies when a trustee mixes trust funds with his own money. A trustee is not expected to want to commit a breach of trust, therefore when he mixes the trust money with his own it is only when his funds are exhausted that he will be considered as having used the trust money. [...]
[...] This theory has been supported by Lionel Smith in his book “Tracing in Taylor v Plumer: Equity in the King Bench”. However, the admission of this fact would bring about some many difficulties that the Court refused to recognise it in Trustees of the Property of FC Jones and Sons v Jones. Common law tracing owes its existence to a misunderstanding, but does still exist. A second possibility would be the automatic supplementation of legal tracing by equity tracing, which would lead to emerging the common law rules into equitable ones. [...]
[...] The existence of two different sets of rules applying to tracing has raised some issues as to whether there should be a single law of tracing. Lord Millet in Fosset v Mc Keown said unified and comprehensive restitutionary remedy should be developed based on equitable principles, and attempts to rationalise and develop the common law actions for money had and received should be abandoned”. Some people have also critised the existence of the precondition of a fiduciary relationship in tracing in equity. [...]
[...] These three solutions are the historical truth about tracing, automatic supplementation of law by equity, and the use of common approaches to deal with evidential difficulties. The first solution offers to restore the historical truth about tracing. Tracing was only the creation of equity. In Taylor v Plumer, a mistake was made by the judges that gave birth to the process of tracing at common law. The rules that were used to trace were not as generous as today's rules of equity tracing. [...]
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