“In particular [WIB] statements for individual depositors detail credits which are not reflected in the PKB Account which, at least as far as the Liquidators are aware from the documentation retained by them, are not reflected in any [WIB] statements. The Liquidators do not, therefore, accept that the [WIB] bank statements accurately reflect what funds were, in fact, received and paid out on behalf of individual depositors.”
“This is not, however, the occasion to explore these matters further, for the present is a straightforward case of a trustee who wrongfully misappropriated trust money, mixed it with his own, and used it to pay for an asset for the benefit of his children. Even on the traditional approach, the equitable rules are available to the plaintiffs.”
“The stolen bag of coins The argument for a resulting trust was said to be supported by the case of a thief who steals a bag of coins. At law those coins remain traceable only so long as they are kept separate: as soon as they are mixed with other coins or paid into a mixed bank account they cease to be traceable at law. Can it really be the case, it is asked, that in such circumstances the thief cannot be required to disgorge the property which, in equity, represents the stolen coins? Moneys can only be traced in equity if there has at some stage been a breach of fiduciary duty, ie if either before the theft there was an equitable proprietary interest (eg the coins were stolen trust moneys) or such interest arises under a resulting trust at the time of the theft or the mixing of the moneys. Therefore, it is said, a resulting trust must arise either at the time of the theft or when the moneys are subsequently mixed, Unless this is the law, there will be no right to recover the assets representing the stolen moneys once the moneys have become mixed. I agree that the stolen moneys are traceable in equity. But the proprietary interest which equity is enforcing in such circumstances arises --under a constructive, not a resulting, trust. Although it is difficult to find clear authority for the proposition, when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity. Thus, an infant who has obtained property by fraud is bound in equity to restore it: Stocks v Wilson[1913] 2 KB 235 , 244; R Leslie Ltd v Sheill[1914] 3 KB 607 . Moneys stolen from a bank account can be traced in equity: Bankers Trust Co v Shapira[1980] 1 WLR 1274 , 1282C-E: see also McCormick v Grogan (1860) LR 4 HL 82, 97.”
“What the Court of Equity has done in cases of this kind is to prevent the infant from retaining the benefit of what he has obtained by reason of his fraud. It has done no more than this, and this is a very different thing from making him liable to pay damages or compensation for the loss of the other party’s bargain. If the infant has obtained property by fraud he can be compelled to restore it; if he has obtained money he can be compelled to refund it. If he has not obtained either, but has only purported to bind himself by an obligation to transfer property or to pay money, neither in a Court of law nor a Court of Equity can he be compelled to make good his promise or to make satisfaction for its breach . . . The equitable liability depends, not on the validity of the contract, but on the fact that the defendant while an infant obtained goods from the plaintiff by a false and fraudulent representation.”
“I think it plain that Lush J conceived himself to be merely applying the equitable principle of restitution. The form of the claim was that, by way of equitable relief, the infant should be ordered to pay the reasonable value of the goods, which he could not restore because he had sold them. The argument was that equity would not allow him to keep the goods and not pay for them, that if he kept the property he must discharge the burthen, and that he could not better his position by having put it out of his power to give up the property. ... The judge thought that the fundamental principle in In re King, Ex parte Unity Joint Stock Mutual Banking Association 3 De GJ & J 63 was a liability to account for the money obtained by the fraudulent representation, and that in the case before him there must be a similar liability to account for the proceeds of the sale of the goods obtained by his fraud. If this be the ratio decidendi, though I have difficulty in seeing what liability to account there can be (and certainly none is named in [In re King]), the decision in Stocks v Wilson is distinguishable from the present case and is independent of the above dictum, and I need express no opinion on it. In the present case there is clearly no accounting. There is no fiduciary relation: the money was paid over in order to be used as the defendant’s own and he has so used it and, I suppose, spent it. There is no question of tracing it, no possibility of restoring the very thing got by fraud, nothing but compulsion through a personal judgment to pay an equivalent sum out of his present or future resources, in a word nothing but a judgment in debt to repay the loan. I think this would be nothing but enforcing a void contract. So far as I can find, the Court of Chancery never would have enforced any liability under circumstances like the present, any more than a court of law would have done so, and I think that no ground can be found in the present judgment, which would be an answer to the Infants’ Relief Act.”
“It should only be done when there is good ground for thinking the money in the bank is the plaintiff’s money — as, for instance, when the customer has got the money by fraud — or other wrongdoing — and paid it into his account at the bank. The plaintiff who has been defrauded has a right in equity to follow the money.”
“I will assume therefore that this is a case not of a void but of a voidable transaction by which Hambrouck obtained a title to the money until the plaintiffs elected to avoid his title, which they did when they made their claim in this action. The title would then revest in the plaintiffs subject to any title acquired in the meantime by any transferee for value without notice of the fraud.”
“It may well be that if the representee elects to avoid the contract and set aside a transfer of property made pursuant to it the beneficial interest in the property will be treated as having remained vested in him throughout, at least to the extent necessary to support any tracing claim.”
“But if the other victims of the fraud can trace their money in equity it must be because, having been induced to purchase the shares by false and fraudulent misrepresentations, they are entitled to rescind the transaction and revest the equitable title to the purchase money in themselves, at least to the extent necessary to support an equitable tracing claim: see Daly v Sydney Stock Exchange Ltd(1986) 160 CLR 371 at 387-390 per Brennan J. There is thus no distinction between their case and the plaintiff’s. They can rescind the purchases for fraud, and he for the bribery of his agent; and each can then invoke the assistance of equity to follow property of which he is the equitable owner. But, if this- is correct, as I- think it is, then the trust which is operating in these cases is not some new model remedial constructive trust, but an old-fashioned institutional resulting trust.” 134. concerned to circumvent the supposed rule that there must be a fiduciary relationship or retained beneficial interest before resort may be had to the equitable tracing rules. Until the equitable tracing rules are made available in support of the ordinary common law claim for money had and received some problems will remain incapable of sensible resolution.”
“Upon payment by the customers the purchase money became, and rescission or no rescission remained, the unencumbered property of the company. What the customers would recover on rescission would not be ‘their’ money, but an equivalent sum. Leaving aside for the moment the creation by the court of a new remedial proprietary right, to which totally different considerations would apply, the claimants would have to contend that in every case where a purchaser is misled into buying goods he is automatically entitled upon rescinding the contract to a proprietary right superior to those of all the vendor’s other creditors, exercisable against the whole of the vendor’s assets. It is not surprising that no authority could be cited for such an extreme proposition. The only possible exception is In re Eastgate, Ex parte Ward[1905] 1 KB 465 . Their Lordships doubt whether, correctly understood, the case so decides, but if it does they decline to follow it.”
“73 A Quistclose trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often inquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust, once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cashflow. Commercial life would be impossible if this were not the case.”
“In the premises, on any basis, the Mimran defendants cannot trace into any of Mr Shalson’s assets. Further and alternatively, if the Mimran defendants succeed in showing that they can trace their monies, [the Shalson parties] will seek to set off, in diminution or extinction of the Mimran defendants’ tracing claim, their better right to trace into the payments to or for the benefit of Mr Mimran from [WIB] and the assets representing the same.”
“The general principle is, beyond all question, that work and labour done or money expended by one man to preserve or benefit the property of another do not according to English law create any lien upon the property saved or benefited, nor, even if standing alone, create any obligation to repay the expenditure. Liabilities are not to be forced upon people behind their backs any more than you can confer a benefit upon a man against his will.”
“If such a security is given, it may of course be given upon some express agreement to give time for the payment of the debt, or to give consideration for the security in some other way, or, if there be no express agreement, the law may very readily imply an agreement to give time. It may not be a definite time, but to forbear for some indefinite time in consideration of the security being given. And further than that, if there is no express agreement, and no agreement can be implied at the time and under the circumstances at and under which the indenture giving the further security is executed, yet if that security be communicated to a person who could otherwise sue on the debt, and on the strength of that security he does in fact forbear to sue on the debt, he does give that time with the object of securing which the security is presumably given, and then I think it appears on the cases that there is sufficient consideration, though in a sense it is an ex post facto consideration, for the security which is given.”
“... acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co v Maclure(1882) 21 Ch D 309 and Stoneleigh Finance Ltd v Phillips [1965]2 QB 537), that for acts or documents to be a ‘sham’, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.”