Fusion and Fission in Tracing: Solving the Innocent Volunteers Conundrum

Abstract

In Foskett v McKeown [2001] 1 AC 102, Lord Millett famously dismissed tracing and claiming as based upon the principle of unjust enrichment, 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 equity 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.