## Facts

- The Federal Republic of Brazil brought a claim to recover public funds misappropriated by officials through a substantial fraud.
- Misappropriated funds were transferred via complex transactions, including payments to offshore companies and the acquisition of assets.
- The proceedings named Durant International Corp and associated parties as defendants, who argued that funds could not be traced, as they were used to discharge liabilities or acquire assets and were not held in identifiable accounts.
- Brazil maintained that a close transactional link existed between the misappropriated funds and their subsequent use, enabling tracing even where the funds were not directly identifiable in their original form.
- The Supreme Court was required to determine whether equitable tracing could extend to backwards tracing, and under which circumstances.

## Issues

1. Whether the doctrine of equitable tracing permits "backwards tracing," allowing claimants to trace misappropriated funds through transactions where the original assets are used to discharge liabilities or acquire assets.
2. If permissible, what conditions or requirements must be satisfied to establish backwards tracing.
3. How the requirement of a close transactional link operates in cases involving layered and complex financial transactions.

## Decision

- The Supreme Court held that backwards tracing is permissible under the doctrine of equitable tracing, provided there is a demonstrable and close transactional link between the original misappropriated funds and their subsequent use.
- The Court clarified that this causal connection must not be speculative but substantiated by the facts of the transaction.
- Each case involving tracing, and especially backwards tracing, must be assessed on its individual facts to determine whether the necessary link exists.
- The Court rejected the proposition that backwards tracing could be employed universally, limiting the doctrine’s application to cases meeting the requisite proximity and connection.

## Legal Principles

- Equitable tracing permits a claimant to follow misappropriated assets into their substituted forms, extending beyond the mechanical confines of common law tracing.
- The proprietary interest of the claimant in misappropriated assets continues as the assets change form, subject to the bona fide purchaser defense.
- Backwards tracing within equity is only available where a close transactional link between the source funds and their application is clearly established.
- The doctrine addresses the complexities of modern fraud, particularly where funds are intentionally moved through multi-layered financial networks.
- Application of this principle must avoid speculative links and requires evidence of a proximate and causal relationship between the misappropriated funds and their use.

## Conclusion

The Supreme Court's decision in Federal Republic of Brazil v Durant International Corp [2016] AC 297 marked a significant development in equitable tracing by affirming that backwards tracing is permissible where a close transactional link is clearly established, thereby providing an important tool for asset recovery in complex financial fraud cases.