Learning Outcomes
After reading this article, you will be able to identify and explain the core equitable remedies available to trust beneficiaries, understand how and when tracing applies in trust law, distinguish between personal and proprietary claims, and analyze when and why particular equitable remedies are granted or refused. You will also apply these principles to exam scenarios and understand their relevance to potential practical client problems.
SQE2 Syllabus
For SQE2, you are required to understand the practical operation of equitable remedies and tracing in the context of trust disputes and misapplied assets. This article will help you focus your revision on:
- Distinguishing between personal and proprietary equitable remedies in trust law.
- Recognizing when injunctions, specific performance, or orders for account may be appropriate.
- Explaining and applying tracing rules to recover trust property or its substitute.
- Evaluating key limitations or bars to equitable relief (e.g., clean hands, delay, value, change of position).
- Advising clients on potential outcomes and courses of action based on these principles.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What is the difference between a personal and a proprietary equitable claim in trust law?
- Name two practical situations in which a beneficiary can seek an injunction relating to trust property.
- When tracing trust assets, what must exist between the property and the defendant?
- State one defence that may prevent a successful tracing claim or equitable remedy.
Introduction
Understanding equitable remedies and tracing is essential in resolving trust disputes. Beneficiaries or trustees often need to seek the assistance of the court, either to enforce obligations, recover misapplied assets, or prevent ongoing harm. This article focuses on the main forms of equitable relief available in trust cases and the operation of tracing rules in recovering trust assets or their proceeds.
Equitable Remedies in Trust Law
Equitable remedies go beyond simple awards of compensation. They are discretionary and focus on achieving fairness where legal remedies are inadequate or unavailable. In trust law, the main equitable remedies you must be able to identify and apply are:
- Injunctions (prohibitory and mandatory)
- Specific performance
- Orders for account/disclosure
- Rescission
- Constructive trusts and proprietary orders
Personal versus Proprietary Remedies
A personal remedy is an order against the person, such as to pay money or perform an act. A proprietary remedy gives the claimant rights over specific property, such as a declaration that trust property or its substitute remains held for the beneficiary.
Key Term: Personal remedy
A court order enforceable against a person, usually requiring payment of money or compliance with an obligation.Key Term: Proprietary remedy
A court order recognizing the claimant's rights over particular property (or its substitute), allowing recovery or an interest in that property.Key Term: Injunction
A court order compelling or restraining a party from doing a specific act.Key Term: Specific performance
An order requiring a person to perform a positive contractual, statutory, or trust-related duty, often involving the transfer of property.
Worked Example 1.1
A trustee wrongfully transfers trust shares to himself. The shares increase dramatically in value. Can the beneficiary obtain a proprietary remedy, a personal order, or both?
Answer:
The beneficiary can seek a proprietary remedy (a declaration that the shares are still trust property and are held for the beneficiary), requiring their return. The beneficiary could also seek an account for profits if the trustee made further gains.
Injunctive Relief and Preventative Measures
Beneficiaries may need urgent court orders to prevent loss of trust property, such as:
- Freezing orders (to prevent dissipation of assets)
- Orders restraining breaches of trust (prohibitory injunctions)
Courts assess the adequacy of damages, urgency, and whether it is just to grant the order. The applicant must usually show a serious question to be tried and that the balance of convenience favors an injunction.
Worked Example 1.2
A trustee plans to sell a valuable painting that is trust property and intends to abscond with the proceeds. What remedy can the beneficiary seek?
Answer:
The beneficiary should urgently apply for an injunction to prevent the sale (stopping the breach of trust) and may also seek a freezing order to prevent removal of funds or assets abroad.
Tracing — Recovering Misapplied Assets
Tracing allows claimants to follow value as it passes through the hands of others or is exchanged for substitute property. This is critical where trust property is misappropriated and still identifiable (or replaced by something else acquired from it).
Key Term: Tracing
The process by which a claimant demonstrates that particular property (or its proceeds or substitute) in another's hands derives from property to which they have an equitable (or sometimes legal) interest.
For tracing to succeed, the claimant must establish an original equitable interest and must be able to identify the property or its substitute. The remedy may be personal (a money judgment) or proprietary (recovery of the asset or its replacement).
Key Applications of Tracing
Tracing is possible through both clean substitutions and mixed funds. In mixed funds, claimants may claim a proportional share or sometimes the asset itself, subject to rules like "first in, first out" or equitable apportionment.
Worked Example 1.3
A trustee misappropriates £10,000 and purchases a car in her own name. The car is later traded for a rare sculpture. Can the beneficiary claim the sculpture?
Answer:
Yes, using tracing principles, if the original money and substitutions can be followed and are still identifiable, the beneficiary can assert a proprietary claim over the sculpture.
Bars and Defences to Equitable Remedies
Not all equitable remedies or tracing claims will succeed. Defences may include:
- The defendant is a bona fide purchaser for value without notice (i.e., a good faith buyer who paid for the asset and did not know of the breach).
- The claimant delayed (laches) or otherwise acted inequitably ("clean hands" doctrine).
- The legal or equitable property has been dissipated or destroyed (i.e., is no longer identifiable).
- The defendant's circumstances have changed so that restitution would be unfair ("change of position" defence in some tracing cases).
Exam Warning
A common mistake is to confuse tracing with claiming property — tracing is the process; the right to recover the asset (or value) depends on the result of the process and may still be defeated by a good faith purchaser or other bar.
Limits to Tracing
You usually cannot trace into the hands of someone who has provided value in good faith, without notice of the breach (a "bona fide purchaser for value"), or where the asset no longer exists in any recognizable form. Dissipation, mixing with an innocent person's funds, or destruction terminates the right to a proprietary remedy, although a personal remedy may sometimes survive.
Revision Tip
Always distinguish between establishing an equitable interest (which may support a proprietary remedy) and the need to show that the property is still identifiable or substitutable for tracing to succeed.
Key Point Checklist
This article has covered the following key knowledge points:
- Equitable remedies in trust law include injunctions, specific performance, account and proprietary remedies.
- Tracing enables recovery or following of misapplied trust property, provided it is still identifiable or replaced.
- Personal and proprietary claims differ: proprietary claims attach to property, personal ones result in a money or performance order.
- Defences to equitable relief include good faith purchase for value, delay, and loss of the asset.
- Courts may refuse equitable relief where the claimant fails to act equitably or property is no longer traceable.
- You must advise clients on both the strengths and practical limits of equitable remedies and tracing claims.
Key Terms and Concepts
- Personal remedy
- Proprietary remedy
- Injunction
- Specific performance
- Tracing