Tracing (law) - Illustrations

Illustrations

"Tracing is thus neither a claim nor a remedy. It is merely a process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property." - Foskett v. McKeown

For example, if A has money in a solicitor’s account and the solicitor takes that money to buy a painting, then A may be able to make a claim against the painting. This claim will take priority even if the solicitor is bankrupt and has other unsecured claims against him.

Judicially, probably the most famous example of a tracing claim is AG for Hong Kong v Reid 1 AC 324, 1 NZLR 1 (PC), where Mr Reid, then the Solicitor General for Hong Kong, received bribes for passing information to organised crime in Hong Kong. Under Hong Kong law, the proceeds of those bribes were held on constructive trusts for the government of Hong Kong. Mr Reid then investing the proceeds of the bribes in land in New Zealand, and the land increased substantially in value. When he was caught, Mr Reid admitted that the money was subject to a constructive trust, but argued that he should only be liable to repay the amount of the bribes, and then any profit attributable to the increase in value of the land in New Zealand was not connected with his wrongdoing. However, the Judicial Committee of the Privy Council held that the government of Hong Kong's claim to the money could be traced into the land, and thus the claimant was entitled to the full value of the land, as without his wrong, Mr Reid would never have made those profits and it would be grossly inequitable for him to keep them.