TRACING AT COMMON LAW-MYTH OR REALITY?

It is clear that there is a right to trace property in equity. It is a right in rem, and it enables a plaintiff to take priority over the ordinary creditors where the defendant is insolvent. This equitable proprietary remedy is available where, as a result of what has gone before, some equitable proprietary interest has been created and attaches to the property in the hands of the defendant.l In other words, this remedy would seem to be available only where there is a trust or a fiduciary relationship between the plaintiff and the defendant, or between the plaintiff and someone through whom the money has passed to the defendant.2 Although this limitation has been criticised? the scope of the remedy is tolerably well defined. But what of the right to trace property at common law? Is there such a right? What is its scope? A discussion of these questions is of more than academic interest, for if a legal proprietary remedy exists its scope would not depend upon the requirement of a fiduciary relationship, and this would be of enormous importance in the development of an adequate and unified law of restitution. Indeed, of such importance that it is thought to warrant one more attempt to explain the position at law.

THE PROBLEM

It is submitted that the crux of the matter is this: can a proprietary- - remedy for the recovery of money be enforced by an action for money had and received? Or does a plaintiff in such an action have to prove as an ordinary creditor where the defendant is insolvent? In other words, is an action for money had and received a strictly personal action, or does it fall into two distinct categories-the normal quasi- contractual action and a strictly proprietary one? It would seem that there is considerable academic support for the view that a proprietary remedy can be enforced by an action for

1 Re Diplock, [I9481 1 Ch. 465, 530. 2 Ibid. 3 See especially Maudsley, Proprietary Remedies for the Recovery of Money, (1959) 75 L.Q.R. 234, 241-243; WATERS,THE CONSTRUCTIVETRUST 33-43, 66 et seq; GOFF a JONES, THELAM' OF RESTITUTION41-43 (1966). hereafter cited as GOFF a JONES. TRACING AT COMMON LAW 403 money had and received. Stoljar is of opinion that the action for money had and received 'had not only made possible the following of money into the hands of transferees, it had enabled recovery from bankrupt estate^.'^ Indeed he goes so far as to say that the refinement developed by equity whereby it could create a charge upon a mixed mass of money, existed at common law 'simply because money had and received also gave a right to the same quantity: we might as well have said that it too created a charge upon the mixed mass.'6 He cites, in the main, a group of old cases as a~thority.~It will be submitted that these cases do not support such a proposition and further that Stoljar is claiming too much for the action of money had and received. Goff and Jones submit that 'subject to the requirements of identifi- ability and the defence of bona fide purchaser, the action for money had and received should be available as a proprietary remedy to enable A to follow his money into the hands of C (a third party who will either be mala fide or an innocent volunteer) in the following circumstances . . .'?, and they go on to list a number of different situations. What is difficult to understand is that the learned writers also say that this action can only result in a personal judgment against C.8 What then do they mean by the use of the term "pro- prietary"? Does it mean that A has priority over C's creditors in the case of the latter's insolvency? Or does it simply mean that C must have received A's money; in other words, that C must have been unjustly enriched at the expense of A? If the latter, then this is a necessary requirement in an ordinary quasi-contractual action for the recovery of money. And if this is the case, is it not misleading and confusing to reflect this view by referring to money had and received as a proprietary remedy? Finally, this question has been examined by Scott in a recent artic1e.O His thesis is an interesting one. The common law, he says, does not give a remedy in rem for the recovery of money or other property. There is no action at law equivalent to the equitable tracing remedy. To "trace" at law therefore 'means no more than to identify property, in a changed form and in new hands, in order to found a

4 STOLJAR,THE LAW OF QUASI-CONTRACT114 (1964), hereafter cited as STOLJAR. 6 STOLJAR115. 6 Id. at 114. 7 GOFF JONES36, n. 12. 8 Id. at 36. 9 Scott, The Right to "Trace" at Common Law, (1966) 7 WEST.AUST. L. REV. 463, hereafter cited as Scott. 404 WESTERN AUSTRALIA LAW REVIEW

personal action in support of a proprietary right.''' But nevertheless, he continues, the terminology of tracing at law is appropriate. This is because the common law can, by means of a purely personal action, achieve an effect very similar to that achieved by the equitable tracing remedy. Thus 'where money or other property belonging to A can be identified as having passed into the hands of B and thence into hands of a third party, C, this may give rise to a personal right of action against C in conversion or in detinue or for money had and re- ceived; and in the specific case of an insolvency of B, this action against C (whether he be the banker of B, the trustee in bankruptcy of B, one to whom B has consigned the goods of A, or the personal representa- tive of B, etc.) will enable A to recover in full as against the other creditors of B, and so to recover all he would have done by tracing order in equity.'" He concludes by saying that this common law remedy is wider in these aspects than the equitable proprietary remedy. 'It does not depend upon a fiduciary relationship; it does not depend upon any adoption by the plaintiff of an agent's acts;12 and since it operates strictly in personam it does not depend upon the continued existence or identifiability of the res.'13 What Scott appears to attempt to do is to give the terminology of "tracing at law" a new and very different meaning from the usual definition. It is difficult to accept this rather novel argument. It is perhaps true that a personal action for money had and received may lie against C where he is an innocent volunteer or a mala fide pur- chaser, but it is difficult to see how such an action would lie against C personally where he is B's trustee in bankruptcy, personal represen- tative or his banker. Surely C cannot in these cases be sued in his personal capacity but only in his represenatiue capacity. If the former were the case, it is difficult to see how this would not be a very simple method of always avoiding the disadvantages which result from having to prove as an ordinary creditor. Furthermore, what if C were insolvent? According to Scott's view the action is strictly in personam. If that is the case then A would have to prove as an ordinary creditor. Scott argues that there is authority for his view. The question whether the cases he cites actually support his thesis will be discussed presently. At the moment it is intended to state what, in this writer's view, is the scope of the right to "trace" at law.

P

10 Scott 489. 11 Ibid. 12 But, quaere, does the equitable tracing remedy? 13 Scott 489. TRACING AT COMMON LAW

THE SCOPE OF THE RIGHT TO TRACE AT LAW The two remedies usually available for the recovery of money are conversion and money had and received.14 The former is a complicated action. It is hydra-headed in the sense that while in most cases the result of the action is a personal remedy for damages, it can be used to enforce a proprietary claim. Indeed, although a tort action, con- version has its basis in property. The defendant must have dealt with the property in the plaintiff's chattels. Basically, then, the action of conversion is proprietary, but most of the time it is disguised as a personal action.15 It is this action which is dependant upon "identi- fying" the proceeds. Thus, if a fund or its product can be earmarked even in the hands of a third party, for example an innocent volunteer, then in the right circumstances it is possible that a plaintiff can obtain this specific fund or its product by an action in conversion. And if the defendant is insolvent he can do so in preference to the general creditors. Taylor u. plume^,'^ the leading case on "the doctrine of following money at law", substantiates this view. That was a case of trover. There, it will be remembered, Sir Thomas Plumer entrusted a large sum of money to his agent with instructions to buy Exchequer bills. Instead the agent misapplied it by purchasing American securi- ties and bullion, and with these set off for North America. However, he was caught at Falmouth and the securities and bullion were turned over to sir-~homaswho sold them and received the proceeds. The assignees of the agent, who became bankrupt on the day he received and misapplied Sir Thomas' money, brought an action in trover to recover the proceeds. The Court of King's Bench held that the as- signees could not recover. Lord Ellenborough, speaking for the Court, pointed out that notwithstanding the change in its form, the property was still Sir Thomas'. Indeed, no matter how many changes the

14 'The only two forms of action for the recovery of money were trover (or conversion) and indebitatus assumpsit for money had and received.': Den- ning, The Recovery of Money, (1949) 65 L.Q.R. 37, 37. 15 It is not clear that Scott recognizes or accepts this "two-natured" aspect of conversion. This is apparent hom some of the examples he discusses: Scott 478. In example (2) surely A could sue B in conversion for damages, but could not recover the whole sum in priority from B's assignees if B went bankrupt. However, presumably A could recover the watch in an action for conversion from C's assignees if C went bankrupt. And in example (5) if, as Scott would seem to argue, an action for conversion against the defen- dant's assignees will enable a claimant to take priority over ordinary credi- tors, whatever is the advantage of waiving the tort? For is not the only real advantage of suing in money had and received that it enables a claim- ant to prove as an ordinary creditor? 16 (1815) 3 M. & S. 562. 406 WESTERN AUSTRALIA LAW ALEVIEW property had undergone, as long as it was capabie of being identified it would still be his. His ownership would only cease when the subject of it ceased to be earmarked and ascertainable. As he said: It makes no difference in reason or law into what other form, different from the original, the change may have been made, . . . for thc product of or substitutr for the original thing still follows the naturr of the thing itself, as long as it can be ascertained to be such, and the right only ceases when the means of ascertain- ment fail, which is the case when the subject is turned into money, and mixed and confounded in a general mass of the same drscription.17 An aspect of Taylor v. Plume7 which is often overlooked is that Sir Thomas was not the plaintiff.'B In other words the court was not asked to consider whether Sir Thomas had a good action for the recovery of the bullion and securities if they had ended up in the hands of the agent's assignees, but whether he could keep the realiz- able value of them. However, it seems clear that had Sir Thomas been the plaintiff he would have succeeded in trover. And surely his action would have been an action in rem against the assignees in their representative capacity and not, as Scott argues, a personal action against the assignees.le The great value sf Taylor v. Plumer is that it laid down the limitations of the common law action of trover for the recovery of property. That is all it did. No separate or special proprietary remedy was en~nciated.~~

17 Id. at 575. 18 But Scott did not overlook this point. See Scott 482. 19 Scott says: 'Suppose the case (Taylor v. Plumer) had been otherwise, and it had been the assignees who caught up with the broker, and seized the property. The result would have been the same. They would not have been allowed to retain it as against the principal; and had they refused to deliver it to him, would have been personally liable in detinue or con- version.': Scott 482. 20 A further emasculation of the facts in Taylor v. Plumer illustrates most pointedly the "two-natured" aspect of conversion. If Sir Thomas' agent had not bought any securities with the money but simply spent it, Sir Thomas could have sued him for conversion of it. And if the agent had gone bank- rupt (as of course he did in the actual case) Sir 'T'homas would have had a claim for a liquidated sum, which he could have sued for after discharge. Surely he could not have withdrawn this sum froin the agent's assignees. However, as has been explained, the situation wollld be different where the agent bought bullion with the money. In such a case had Sir Thomas sued the assignees (in their representative capacity) in conversion he could have withdrawn the bullion in priority over ordirtary creditors. Now in both cases the action is for conversion, yet the resr~lts are different. The first is a claim for liquidated damages just as if the agent had damaged a part of Sir Thomas' property; the second, a proprietary claim. TRACING AT COMMON LAW 407

In the case of the latter action, i.e. money had and received, it is submitted that this action has been and is a purely personal action. It is not and never has been dependent upon identifying or ascertain- ing the proceeds. The action is not lost even though the defendant has mixed the money so as to make identification impossible or has spent it.21 It makes no difference what the defendant has done with the money, for this action is based upon the benefit which the de- fendant has unjustly received, not upon reclaiming the plaintiff's own property in his hands. Therefore if the defendant is insolvent the plaintiff will have to prove as an ordinary creditor. In the old case of Parker u. Norton,22 the plaintiff, who owned a bill of exchange, entrusted it to the defendant, who was to collect the proceeds of the bill when it became due and hand them over to the plaintiff. Instead the defendant discounted the bill and applied the money to his own use. Soon after discounting the bill, the de- fendant became insolvent, and it would appear from the report that he had obtained his certificate. The plaintiff brought an action of trover to recover the full value of the bill. The defendant argued that this was the wrong form of action, as the plaintiff was bound to bring an action for money had and received. In other words the plaintiff was bound to prove as an ordinary creditor, and since he had not he could not succeed. The Court of King's Bench rejected this argument and held that the plaintiff could maintain an action for trover for the full value of the bill. Lord Kenyon C.J. said: If the plaintiff, after considering what remedy he should take, had brought an action for money had and received, he would have affirmed that act of the defendant, and the bankruptcy and the certificate would have been an answer to that action. . . . In this case therefore the remedy by an action for money had and received would not have done the plaintiff complete justice; and though he might have waived asserting his right to the full ex- tent, the law will not compel him to do so. On the whole I am clearly of opinion on principles of law and justice, that the plaintiff may maintain this action of tr~ver.~~ Similarly Grose J. said : The question here is not whether or not the plaintiff might have proved his debt under the defendant's commission, but whether he was bound to do so; and if he were not, the certificate is no bar to this action. In order to effect the justice of the case where

21 Subject of course to the doctrine of the defence of change of position. 22 (1796) 6 T.R. 695. 23 Id. at 699-700. 408 WESTERN AUSTRALIA LAW REVIEW

trover would have lain, we have held for the sake of the plain- tiff himself that he might waive the tort and sue as on a contract. But the plaintiff is not bound to say that the defendant was his agent in discounting the bill: the defendant himself says that he was not his agent, for that he committed a fraud, a breach of trust, in receiving the money contrary to the plaintiffs directions; then he ought not to be permitted to say in a court of justice that the plaintiff is bound to consider this as money received by him as the plaintiffs agent.24 But surely whatever doubt there was as to the scope of the action for money had and received has been removed by the decision of the House of Lords in Sinclair v. Bro~gham.~5That was the case con- cerning a building society which had for some years carried on an extensive ultra vires banking business. An order was made for the winding up of the society, and questions of priority arose among the outside creditors of the society, the shareholders, and the bank cus- tomers on current and deposit accounts, called throughout the case the depositors. The funds in the hands of the liquidator were not sufficient for the payment of all claimants in full, but were more than sufficient for the payment of the outside creditors and the share- holders.26 The outside creditors and the Class A shareholders having been paid dff by arrangement before the appeal to the House of Lords, the question before the House was who was to be paid next out of the fund, the depositors or the Class B shareholders. The first question which all of their Lordships considered was whether the depositors could succeed in an action for money had and received. It is clear they all considered this to be a personal claim in quasi- contract. And they rejected it on the ground that, as the basis of such an action was an implied contract to repay, the action could not be invoked here because a fictitious contract could not be imputed in a situation where it would be ultra vires to make an express one. In his judgment Viscount Haldane L.C. devoted considerable space to a discussion of the basis of this action. He concluded that 'as a matter of principle the law of England cannot now, consistently with the interpretation which the courts have placed on the statutes which determine the capacity of statutory societies, impute the fiction of such a promise where it would have been ultra vires to give it. . . . For to impute a fictitious promise is simply to presume the existence of a state of facts, and the presumption can give rise to no higher

24 Id. at 700. 25 [I9141 A.C. 398. 26 There were two classes of shareholders, A and B. TRACING AT COMMON LAW 409

right than would result if the facts were Therefore, his Lordship continued, the depositors' 'claim cannot be in personam and must be in rem, a claim to follow and recover property with which, in equity at all events, they had never really parted.'28 It is true that Viscount Haldane and Lord Parker did suggest that if the money borrowed had been either in its original form or could have been earmarked or traced into assets acquired with it, the de- positors could have succeeded in a claim in rem at law.29 However, it is submitted that their Lordships were not referring to any special common law proprietary remedy, but were simply saying that the depositors would have been able to enforce a proprietary claim by means of an action of trover if the money had been capable of identificati~n.~~

SCOTT v. SURMAN AND BANQUE BELGE v. HAMBROUCK: AUTHORITY FOR THE OPPOSITE CONCLUSION? It is difficult to see how the old case of Scott v. Surman31 affects this statement of the law. Stoljar cites this case as well as a number of other 18th century decisions to support his view.32 And Scott treats it as an important authority for his thesis.33 Hence it is necessary to discuss the case in detail. In Scott v. S~rrnan~~the plaintiffs consigned a quantity of tar to one Richard Scott (a brother of one of the plaintiffs) as their factor. He received the bill of lading and sold the tar. It was agreed that the buyers should pay for the tar in promissory notes and that a debt of £31 which the factor owed the buyer should be deducted. Two days later the buyers gave the factor two promissory notes for £169 and deducted the debt of £31, thus making the total payment of £200 which sum amounted only to part payment of the account. Shortly afterwards the factor became bankrupt, and his assignees to whom he delivered the notes duly received the money.35 The la in tiff brought

27 [1914] A.C. 398, 417. 28 Id. at 418; see also Lord Parker, id. at 440, and Lord Summer, id. at 452-456, to the same effect. 29 Id. at 418-420, per Viscount Haldane, and at 440-442, per Lord Parker. 30 The depositors did however "partially" succeed in equity. 31 (1742) Willes 400. 32 STOLJAR114. 33 scott 482-484. 3'4 (1742) Willes 400 35 They (the assignees) also received payment of the balance of the account as well as something called "bounty-money'' to which evidently the im- porter of goods had a statutory right. However it is not clear from the 410 WESTERN AUSTRALIA LAW REVlEW an action for money had and received against the assignees to recover the money. It was pointcd out by Willes C.J., who delivered the judgment of the court, that if thc money had been paid to the factor before his bankruptcy, the plaintiffs would have had an action for money had and received against the assignees in their representative capacity:' but they would have had to prove as ordinary creditors. As he said: Wc arc all agreed that if the money for which the tar had been sold had bren all paid to thr bankrupt before his bankruptcy, and had not bcen laid out again by him in any specific thing to distinguish it from the rest of his estate, in that case the plaintiffs could not have recovered anything in this action, but must have comr in as crrditors under the commission, as is laid down in thr case of Whitecomb i:. ,/a~ob~~and in many other cases. But thc rpason of this is so very plain that I need not cite any other, brcausc moncy has no earmark and therefore cannot be fol- 10wrd.~~ This would appear to have been his only remedy. There was no action in equity available, as it seems that, at that early date, there was no right in equity to follow money into a mixed fund. In other words the equitable remedy was confined to situations where the money was earmarked or identifiable. The judgment of Lord Ellen- borough in Taylor v. Plumeras substantiates this view. Many of the cases (including that of Whitecomb v. Jacob) relied upon by the learned judge were decisions of a court of equity. Of course no such requirement affected the action for money had and received. Thus the court held that the plaintiffs could 'only come in as creditors' for the debt of £31, as this was the same as if the 'bankrupt had received it in money before his bankr~ptcy'.~~However, the Court of Common Pleas held that the plaintiffs could recover the full amount of the notes. And it is clear that the claim was in personam and made against the assignees in their personal capacity. Thus, had the assignees received the money and then become bankrupt the plaintiffs would haw had to prove as ordinary creditors.

report how these sums were broken down and how the court arrived at the award it did. But for our purposes this point is of no importance. 36 Not, as Scott would appear to argue, against them in their personal capa- city: Scott 482. 37 (1710) 1 Salk. 160. 38 (1742) Willes 400, 403-404. 39 (1815) 3 M. & S. 562. See also Gladstone v. Hadwen, (1813) 1 M. & S. 517. 40 (1742) Willes 400, 401. TRACING AT COMMON LAW 41 1

At the time of this case the scope of the action for money had anci received was still not defined. It was a new action; the courts were still experimenting with it.41 But it was a flexible action and above all an equitable one. In other words this personal remedy depended upon whether it was fair and just that the defendant should repay. Indeed Lord Mansfield was to define the scope of this action in these terms only a few years later in the celebrated case of Moses v. Mac- fe~lan~~where he said that 'the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money.'43 It is submitted that in Scott v. Surman the Court of Common Pleas regarded this as being the "gist" of the action, and thought that it could be extended to cover the facts of the case before them. Now it is difficult to accept that this extension was valid. Surely the promissory notes constituted choses in action in favour of the factor and thus formed part of the assets of his estate on his bankruptcy, i.e., they were assets realized after the bankruptcy by the assignees. And therefore the proceeds from the notes ought to have been treated in the same way as the debt of £31. Hence it is difficult to see how the assignees could be sued in their personal capacity. Perhaps the crucial factor in the court's view was that the bankrupt had not received the money before he went bankrupt. But it is not easy to see why that should make any difference. In fact it is not easy to escape from the conclusion that the decision is wrong. Furthermore, it is submitted that this explanation of Scott v. Surman is applicable to a cluster of cases decided in the second half of the 18th century; namely, Clarke v. Sl~ee,4~Zinch v. Walker46 and Har- rison v. Walker.46These are the cases on which Stoljar chiefly relies.47

41 For example, see Lindon v. Hooper, (1776) 1 Cowp. 414. There, the plaintiff sued in money had and received to recover money he had paid to obtain the release of his cattle which he alleged had been wrongfully distrained. The court rejected his claim saying that he should have sued in replevin or trespass; these being the proper actions to try a wrongful distress. Even Lord Mansfieid, the great patron of the action of money had and received, agreed with this. He was not prepared to allow 'a method of proceeding used and approved for ages' to be lightly pushed aside by an action which after all was a 'new experiment': id. at 419. 42 (1760) 2 Burr. 1005. 4s Id. at 1012. a4 (1774) 1 COW^. 197. aa (1777) 2 Wm. BI. 1154. 46 (1792) Peake 150. 47 STOLJAR 114. 412 WESTERN AUSTRALIA LAW REVIEW

In none of them was a proprietary claim enforced by an action for money had and received. The claim was in personam. It is not clear from an examination of Stoljar's discussion whether he accepted that this was the case. Indeed it would seem from his comments that he thought a claim in rem could be enforced by this action. Scott cer- tainly accepts that the claim in Scott v. Surman was in personam. But in his opinion, and it must be remembered that his interpretation is very much coloured by his view of the meaning of "tracing at law", Scott v. Surman is 'clear authority for saying that the common law will allow a plaintiff to trace his property into money, even though the coins and notes are not identifiable'. And he argues that this decision readily supports the contention that, if A's agent, B, pays A's money into his bank account with his banker, C, A can "trace" his property.48 Apart from the fact that there is nothing in the facts of Scott v. Surman to indicate that the factor sold the tar wrongfully or unlawfully and that therefore it is difficult to see how this case is relevant to the situation of a wrongful deposit by an agent of his principal's money, surely Scott is claiming too much for Scott v. Surman. It is submitted in the light of what has been said that it cannot support Scott's wide conclusions. It only remains to consider the mort recent decision of Banque Belge Pour L'Etranger v. Hambr0uck,4~a case upon which much reliance has been placed by those writers whose views have been summarized above. This case then is of the utmost importance to this discussion, and it is necessary to consider it in some detail. The facts are that Hambrouck, by means of cheques drawn on his employ- er's account, fraudulently obtained from the plaintiffs bank over £6,000. He deposited this money in an account of his own at Farrow's Bank. It is not clear whether Hambrouck had money of his own in this account or at some time had deposited money of his own in the account. Atkin L.J. says that 'in substance no other funds were paid into the account than the proceeds of these forged cheques'.60 How- ever a statement of Scrutton L.J. implies that there was other money in the account.51 Whatever the case, Hambrouck drew from that

48 Scott 483-484. 4s [1921] 1 K.B. 321. 60 Id. at 331. 51 He said: The defence is that it was not the money of the Banque Belge, for pay- ment into Hambrouck's bank, and his drawing out other money in satis- faction, had changed its identity. TRACING AT COMMON LAW 413 account sums of money which he gave to the defendant, his mistress, who received them without notice and deposited them in her bank account. There was no question of fraud on her part. She was an innocent volunteer. No other money was paid into this account except money which came from Hambrouck's bank account. At the time of the action there was £315 in her account and the plaintiffs asked for a declaration that the £315 was their property, and for an order that it should be paid over to them. The Court of Appeal held that the plaintiffs were entitled to the money. However there is a great deal of confusion in the judgments over exactly what remedy the plain- tiffs had. The confusion was greatly heightened by the way in which the plaintiffs formulated their claim. Indeed their formulation would seem to indicate that they were uncertain as to whether the proper claim was in common law or equity. It is certainly true to say that 'an element of uncertainty pervades the whole decision'.52 Bankes L.J. thought that the third contention of the defendant, that as she had paid the money into her banking account it could not be followed and 'that an action for money had and received would therefore not lie',63 could not be ~upported.~In his opinion the money was ascertainable and could be identified, as the defendant had never paid any money into her account except money which was part of the proceeds of Hambrouck's frauds. There was no need to have recourse to the equitable proprietary remedy, the money could be followed at law.55 Scrutton L.J. disagreed. He thought that the money had lost its identity when it was paid by Hambrouck into his bank account, and this he said was a good answer to a common law claim for money had and received.56 But, with respect, a claim for money had and received is not dependent upon identifying the pro- ceeds. It would appear that even Atkin L.J.'s judgment is confused on this point, for he said: It would follow that as the money paid into the bank can be identified as the product of the original money, the plaintiffs

I am inclined to think that at common law this would be a good answer to a claim for money had and received, at any rate if the money was mixed in Hambrouck's bank with other money: id. at 329-330. See also VAINES,PERSONAL PROPERTY 143 (3rd ed.) , where he treats this case as one in which the money obtained by Hambrouck's fraudulent operations had been mixed with other money in his bank account. 52 HANBURY,ESSAYS IN EQUITY33. 53 [1921] 1 K.B. 321, 326. 54 Id. at 327. 56 Id. at 328. 56 Id. at 329-330. 414 WESTERN AUSTRALIA LAW REVIEW

have the common law right to claim it, and can sue for money had and received.57 However Atkin L.J. clearly said that it was only through the help of the equitable tracing remedy that the plaintiff could recover. Indeed his whole judgment seems to suggest that there is no need to draw a distinction between law and equity. The two have fused and the result is an effective remedy for the recovery of property which has been unjustly acquired.6s Scrutton L.J. did not go as far as this. He simply said that the plaintiffs could recover because they could invoke the equitable tracing remedy.69 It is difficult to see, in the light of the curious way in which the plaintiffs formulated their claim, what other remedy was available to them than that of the equitable tracing order. Indeed it is submitted that the only way the decision can be explained is that the equitable proprietary remedy was the basis of the claim. Admittedly there is no mention of the requirement of a fiduciary relationship. Is not perhaps the short answer to this point, that at that time, nobody thought it was necessary that there be a fiduciary relationship beween the parties before the tracing remedy could be invoked?@'

57 Id. at 335-336. 6s ~d.at 333-336. The most important passage follows his comments on Taylor v. Plumer. He said: I venture to doubt whether the common law ever so restricted the right as to hold that the money became incapable of being traced, merely be- cause paid to the broker's general account with his banker. The question always was, had the means of ascertainment failed? But if in 1815 the common law halted outside the bankers' door, by 1879 equity had had the courage to lift the latch, walk in and examine the books: Re Hallett's Estate, (1880) I3 Ch.D. 696. I see no reason why the means of ascertain- ment so provided should not now be available both for common law and equity proceedings. If, following the principles laid down in Re Hallett's Estate, it can be ascertained either that the money in the bank, or the commodity which it has brought, is 'the product of, or substitute for, the ongmal thing,' then it still follows 'the nature of the thing itself'. On these principles it would follow that as money paid into the bank can be identified as the produce of the original money, the plaintiffs have the common law right to claim it, and can sue for money had and rece~ved: id. at 335-336. 60 ~d.at 330. 60 In Sinclair v. Brougham, 119141 A.C. 398, none of the Law Lords laid down the proposition that the equitable proprietary remedy depended upon there being a fiduciary relationship. And in R. Leslie Ltd. v. Sheill, [1914] 3 K.B. 607, decided a few months after Sinclair v. Brougham, Lord Summer, who was also a judge in the latter case, referred to the right to trace in equity and did not say that it was dependent upon the existence of a fiduciary relationship. TRACING AT COMMON LAW 415

Therefore Banque Belge v. Hambrouck, with respect, is not a com- mon law illustration of the proposition that "unmixed money" can be traced into the hands of an innocent vol~nteer.~~Even conceding that Hambrouck did not mix the money with money of his own in his bank account,62 had not the money ceased to be identifiable in common law terms when Hambrouck deposited it in his bank account?83 In the words of Lord Haldane in Sinclair v. Broughams4 a debtor and creditor relationship had inter~ened.~~Certainly both Scrutton L.J. and Atkin L.J. thought this to be the case. Bankes L.J. disagreed, and it is submitted with respect that he was wrong on this point. Therefore due to the peculiar way in which the plaintiffs formulated their claim, it was only in equity that they could have possibly been s~ccessful.~~This is not to say that an action for money had and received could not have been brought against Hambrouck'~ mistress. But it would have been a personal action in no way dependent upon identification in the proprietary sense. However, whether or not it would have succeeded is, as will be shown, a difficult question, and one which was not an issue in this case. But this question was very much an issue in the later case of Transvaal and Delagoa Bay Investment Co. Ltd. v. Atkinson and Wife.67 The facts of that case are remarkably similar to those of Banque Belge v. Hambr~uck.~~In the former the plaintiffs were a South African Company which had a London committee for the purpose of distributing dividends to overseas investors. Atkinson, who

61 The Court of Appeal in Re Diplock, [I9481 Ch. 465, said: So far as it is relevant to the question which we have to consider, the case (Banque Belge v. Hambrouck) appears to do no more than afford an example of the proposition (which is not disputed) that "unmixed money" can be traced into the hands of a volunteer: id. at 544. 62 This would mean that in one way the money was "unmixed". 133 That is, the money may have been "unmixed" but as far as the common law was coneerned it was not identifiable. 84 [I9141 A.C. 398. 65 Id. at 419. 68 STOLJAR107 is contrary; so also are GOFF & JONES 46-48. All three writers consider the case to be an example of following money successfully at law. Apparently, however, Scott takes a different view of the case. In his opinion it 'is yet another instance of the common law achieving, by a personal action against an assignee of the defendant (the assignee here being the defendant's bank), very much the same effect as would be achieved in equity by an action in rem against the defendant himself.': Scott 488. Enough has been said to indicate that this is not the view taken by the writer. Again, it would seem that Scott is claiming too much for the case. 67 [I9441 1 All E.R. 579. 6s [igzi] 1 K.B. 321. 416 WESTERN AUSTRALIA LAW REVIEW was secretary of this committee, fraudulently obtained cheques meant for shareholders and paid them into his wife's account. Some of this money she spent on household goods while some was paid to Atkinson. At no time did she know that the money in her account belonged to the plaintiff company; she was an innocent volunteer. At the time of the action there was no money in the account. However, Atkison J. had no reservations in pointing out that had there been money in the account the plaintiff would have been entitled in equity to a pro- prietary remedy to recover it. For authority he referred to Banque Belge v. Hambrouck,B9 and he did not mention the requirement of a fiduciary relationship. As he said: Equity allows the money to be followed, not only if it is still in existence in its original form, but also if it has been converted into another form, provided that it is clearly identifiable in its changed form. It is clear in view of the decision in Banque Belge v. Hambrouck that, if, when the claim was made, there had been money in the defendant's account clearly attributable to the stolen cheques, that money could have been followed and claimed.70 The question which caused difficulty for Atkinson J. was whether the plaintiff, had a personal claim in quasi-contract against the wife, i.e. whether an action for money had and received would lie. He began by pointing out that 'the principle upon which the personal remedy for what has been called unjustifiable enrichment is based is perhaps not finally settled'?l There are two views. On the one hand there was the view, afformed by the House of Lords in Sinclair v. Bro~gham,?~that the action is based upon an implied promise.78 On the other, there was Lord Wright's view, that the basis of the action is unjust enri~hment.7~He was of opinion that he was bound by Sinclair v. Br~ugham,?~and taking that to be the law he failed 'to see how the law can imply a promise by the defendant in this case to repay money to the plaintiffs where she never had the faintest idea that she was receiving anything from them at all. If A steals a £5 note from me and gives it to his wife, asking and receiving £2.10.0 by way of change, and instructing her to spend the rest in

6s lbid. 70 119441 1 All E.R. 579, 583. 71 lbid. 72 119141 A.C. 398. 8 11944 1 All E.R. 579. 583. 74 Id. at 584. 76 [I9141 A.C. 398. TRACING AT COMMON LAW paying a coal bill, and buying herself a pair of shoes, those she was wearing being full of holes, even the law could not imply a promise by the wife to repay me my £5 note. There is no privityT6on which to found such a promise.'77 Nevertheless, for all that, Atkinson J. thought it right to deal with the case on the view held by Lord Wright.78 And he would have allowed a personal action against the defendant except that here the defendant had so altered her circum- stances that it would have been unjust to make her pay.7s Thus the position was 'that it is impossible to imply a promise to repay, that it would be unjust to imply such a promise even if it were possible, and that there are no circumstances which made it unconscientious for the defendant to resist a personal judgment against her. . . The importance of this case is that not only does it illustrate that an action for money had and received is a purely personal action, but it also lays bare the real problem which still plagues this action,

76 This has been justly described as an 'unintelligible concept': JACKSON, THE HISTORYOF QUASI-CONTRACT103 (1936). Certainly it is wholly irre- levant to the law of quasi-contract. The use of it here illustrates most pregnantly how contractual thinking still dominates the law of quasi-contract. As Dawson said, 'The term @rivity) itself was unfortunate, for it was a transparent attempt to limit quasi-contract recovery by a test imported from express contract. The "want of privity" objection has been beaten down almost everywhere; the grant of the quasi-contract remedy creates whatever privity is needed.' DAWSON,UNJUST ENRICHMENT126 (Boston 1951) . Unfortunately this would not as yet appear to be the case in English law. See also WINFIELD,THE LAW OF QUASI-CONTRACTS14-21 (1952) ; GOFF & JONES9, n. 33. 77 ~144411 ~iiE.R. 579, 584. 78 Ibid. 79 Id. at 586. English law does not recognize any general defence of change of position: GOFF & JONES483 et seq. However, it does recognize a defence of this nature where an agent, who has received money on behalf of his principal, has paid it over to his principal (Sadler v. Evans, (1766) 4 Burr. 1984), or has granted new credit to him (Holland v. Russell, (1863) 4 B. & S. 14), or has paid it away on his (the principal's) order (Holland v. Russell, (1863) 4 B. & S. 14). Atkinson J. was of opinion that this principle could be invoked to protect Mrs. Atkinson. But with respect it is difficult to see how this was a case of strict agency. Mrs. Atkinson was not clothed with any authority from her husband. She was legal owner of the money, part of which she was bound by a contract to deal with in a particular way. But this feature alone is not sufficient to create an agency relationship. Certainly it would have been hard upon Mrs. Atkinson to have compelled her to disgorge an amount of money equivalent to that which had flowed through her account over some six years. However, it is submitted that the extension of the agency rule to protect her was inappropriate in the circumstances. 80 [I9441 1 All E.R. 579, 586. WESTERN AUSTRALIA LAW REVIEW namely, whether the right to recover in quasi-contract is based upon an implied contract or upon the guiding principle of unjust enrich- ment. This is not an altogether arid dispute as the outcome would appear to be of great importance to a plaintiff who is seeking restitu- tion from a transferee whether he be a mala fide purchaser or an innocent volunteer. This is the only conclusion, exasperating as it may be, which can be drawn from statements made by the Court of Ap- peal in Re Diplo~k.~~That case concerned the will of Caleb ~i~lock, who gave the residue of his property for purposes which he intended to be, and which his executors thought were, charitable, but which were held not to be so.82 The executors had distributed £203,000 among a large number of charitable institution^.^^ When the invalidity of the charitable gift was discovered, the next of kin brought an action to recover from the charities the money they had received.84 The plaintiffs' personal claim in quasi-contract failed because of the mistake of law rule.86 The Court of Appeal thought that the execu- tor's mistake was one of law and that 'itmay (we think) be taken to be clearly established that the common law claim is founded upon an implied promise to pay and that-whether by application of the principle ignorantia juris non excusat or on other grounds-no such promise will! be implied where the payment was made under mistake of the general law.'86 However, they went on to suggest that even if the mistake had been one of fact, recovery would still have been denied for lack of privity in the fictitious contract. They said: And as the appellants forcibly pressed upon us in argument, in other respects there are marked and important differences be- tween the claim here put forward on the part of the appellants and a claim at common law for money had and received. In the latter the proper claimant is normally the person who originally made the payment or is that person's principal or representative: and the claim is made against him who received the money or

81 [I9481 Ch. 465. 82 Chichester Diocesan Fund v. Simpson, [I9441 A.C. 341. 83 The charities were innocent volunteers. The Court of Appeal rejected the argument that the charities had taken with notice of the invalidity of the gift because the letter which informed them of their selection as an intended recipient had referred in general terms to the testator's will: [I9481 Ch. 465, 477-479. 84 The plaintiffs had already taken proceedings against the executors and their claim had been compromised at an early stage and an order had been made by Simonds J. confirming the compromise: [I9481 Ch. 465, 474-5. 85 However the plaintiffs' personal claim in equity was successful: Minister of Health v. Simpson, [I9511 A.C. 251. 86 [I9481 Ch. 465, 480. TRACING AT COMMON LAW

his representative. It is indeed difficult to see how, save betwee.. the parties to the original transaction or between parties linked by a relationship such as principal and agent, any implied promise to repay can be imported. In the present case the payments were originally made by the executors and it is in our judgment im- possible to say that in making the payments the executors were acting as agents or in any way on behalf of the next-of-kin, of whose rights and existence the executors were entirely ignorant.87 It is clear, both from the judgment of Wynn-Parry J. at first instancess and from that of the Court of Appeal, that they considered the action for money had and received to be a purely personal one. Admittedly, both do discuss the scope of the right to trace at common law,sB but it is submitted that their discussion has no relevance to the action of money had and received-it is simply a restatement of the scope of the action of conversion for the recovery of money.

CONCLUSION At common law then the position is this. The action for money had and received is strictly a personal action. It is not dual-purposed in the sense that sometimes it can be used to enforce a proprietary claim. It does not depend upon being able to identify the res. It depends ultimately on the justice of the plaintiffs claim. The real difficulty affecting this action is that the English courts have not totally accepted this. They have not, in other words, fully accepted that restitution should be based on the principle of unjust enrichment. They still cling to rhe "implied contra~t".~This is the crucial problem affecting this action and it will only be solved when the fictitious contract is 'decently interred as a relic of an obsolete proced~re'.~~ For all intents and purposes there is no proprietary remedy avail- able at law to the plaintiff if the personal one is inadequate, e.g. where the defendant is insolvent. The action of conversion is a complicated one which will only lie in certain well defined cases. ~urthermoreit depends upon being able to identify the money, which in almost all cases will not be possible.

87 Id. at 480-481. 8s Re Diplock, [1947] Ch. 716. 89 Id. at 744-747, and see the remarks of the Court of Appeal, [1948] Ch. 465, 518-520. 90 The fact alone would seem to be conclusive that the action for money had and received operates in personam only. Dl G. K. Scott, Restitution from an Innocent Transferee who is not a Purchaser for Value, 62 HARV.L. REV. 1002, 1005. 420 WESTERN AUSTRALIA LAW REVIEW

Perhaps the views of those who are of opinion that an action for money had and received can be used to enforce a proprietary claim can be explained by the fact that English Law to a large extent limits its remedies for unjust enrichment to cases in which the enrichment consists in the acquisition by the defendant from the plaintiff of a specific thing or sum. This enables it to avoid facing some of the difficulties which arise when other forms of enrichment are admitted. But this restriction is not the basis of the remedy. DAVID CUTHBERTSON*

Legal Seuetary to Ritchie 1. of the Supreme Court of Canada.