Restitution 09:15 - 10:45 Friday, 3rd September, 2021 TLC040 Track

464 Keynote Speaker - Fusion and Fission in Tracing: Solving the Innocent Volunteers Conundrum

Professor Lusina Ho1, Kelvin Low2 1Faculty of Law, The University of Hong Kong, Hong Kong, China. 2National University of Singaporey of Hong Kong, Singapore, Singapore

Abstract

In Foskett v McKeown [2001] 1 AC 102, Lord Millett famously dismissed tracing and claiming as based upon the principle of , preferring instead to see tracing as a rights-neutral evidentiary process of tracking value from one right to another and claiming as the logical entailment of hard-nosed property rights. In the same decision, albeit by way of dicta, judicial support for the fusion of tracing at law and in reached its apogee. While commentators have persuasively criticised the metaphor of tracing value, none of their proposed justifications of tracing distinguish between innocent volunteers and defendants who were at fault. Examining both modern developments in unjust enrichment theory and the historical development of the law of tracing and claiming against innocent volunteers, we argue that in addition to jurisdictional fusion, the law also needs to undergo a fault-based fission. While tracing may be neutral as to jurisdiction, its justification with respect to innocent volunteers and recipients subject to a duty to account are distinct. Tracing and claiming against trustees, bailees, thieves, and other wrongdoers is premised upon their liability to account, whereas tracing and claiming against innocent volunteers should be grounded on unjust enrichment. Distinguishing between these two different bases of liability enables the law to protect the legitimate interests of innocent volunteers. In particular, claimants should not be allowed to assert proprietary claims against gains obtained by innocent volunteers through substituting either trust assets or the traceable products of such assets, and nor should claimants be allowed to trace through such gains to subsequent recipients, including those that are not innocent volunteers. In other words, claimants should be limited to tracing through and claiming a charge over any traceable trust assets retained by innocent volunteers up to the value of the asset initially received. 8 and Tracing

Rory Gregson University of Oxford, Oxford, United Kingdom

Abstract

D holds title to cash on trust for C and D spends the cash in breach of trust. If tracing shows that D exchanged title to the cash for title to a painting, then D holds title to the painting on trust for C. Alternatively, if tracing shows that D exchanged title to the cash for the discharge of X's mortgage over D's property, then C is subrogated to the extinguished mortgage. In other words, C acquires a new mortgage over D's property, which resembles the extinguished mortgage which X used to have.

The only difference between these two scenarios is that in the first D acquires a right, whereas in the second D discharges its debt. The dominant view is that this factual difference is normatively insignificant: subrogation to traceably discharged debts is subject to the same conditions, and is justified by the same reason, as trusts over traceably acquired rights.

This paper interrogates that assumption. It agrees with the orthodoxy that trusts over traceably acquired rights and subrogation to traceably discharged debts share a single justification. However, the paper departs from the orthodox view of what that justification is. This has implications for the leading and controversial cases of BFC and Menelaou.