Foskett v McKeown [2001] 1 AC 102 esp

Equity notes fully updated for recent exams at Oxford and Cambridge. These notes cover all the LLB trusts cases and so.

COMMENTARY

• The judgement, delivered by Lord Millett, ruled that this was a question of vindication of property rights rather than unjust enrichment.
• The Court of Appeal ruled that the purchasers did not have a right to a pro rata share of the policy proceeds but were entitled to repayment of the fourth and fifth premium amounts plus interest. Therefore, the claimants could get an equitable lien over the proceeds of the policy to secure the misappropriated funds plus interest.
• The Court also ruled that money should be divided between the parties based on the proportions in which they invested to the premiums.

ORIGINAL ANALYSIS

• McKeown misappropriated money entrusted to him for the purchase of land in Portugal. He used part of the money to pay two of the premiums on his life assurance policy. Prior to the payment being made he divested the beneficial interest in the policy to his three children. McKeown committed suicide.
• The claimant, one of the prospective purchasers (i.e. beneficiary), claimed to be entitled to the proceeds of the policy.
• The HL held that the purchasers’ claim was an assertion of an equitable proprietary interest arising out of the mixing of the premiums with the value of the policy. As such the purchasers were entitled to a pro rata share of the monies from the policy.

Lord Millett

• He defined both ‘following’ and ‘tracing’.
• Following is the process of following the same asset from hand to hand whereas tracing is identifying a new asset as the substitute for the old. When one asset is exchanged for another, can follow it into the hands of the new owner or trace its value to the new asset. Will depend on the circumstances.
• Tracing is not a remedy/claim: It is simply an identification of the property to be claimed.

I would state the basic rule as follows: where a trustee wrongfully uses trust money to provide part of the costs of acquiring an asset, the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money.

It does not matter whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset.

• i.e. the beneficiaries could choose between either:
  1. A constructive trust over the proceeds for the proportion of the life insurance payout purchased with their money; or
  2. An equitable lien over the fund for the repayment of that amount.

• The basis of this CT is to vindicate the plaintiffs' original proprietary rights.
  • This is problematic: The ‘rights’ needing vindication are to a share of the original trust money - what they are in fact getting is a new right to a share in the life insurance policy which, since they are getting a proportion-as opposed to the value to which they were entitled under the original trust-could greatly exceed the value of the initial right.
  • Perhaps unjust enrichment would therefore make more sense.

  Any comments or edits about this case?