Tracing and Common Law Claims to Substitute Assets: Separating Myth From Reality

Tracing is a process by which a claimant shows that an asset represents a substitute for an original asset for the purposes of making a claim in respect of that substitute. Orthodox tracing theory says that this process involves the following of the value inherent in the original into the substitute. Orthodox theory also states that tracing is a neutral process, unconnected to any claims that may be made in the substitute. The effect of accepting this orthodoxy has been that the true nature of the tracing process has become obscured. In particular the failure of orthodox theorists to correctly identify tracing as being an exercise that can only be justified within the context of a fiduciary relationship has led to the widespread belief that it is possible to trace at common law. It will be argued in this thesis the this cannot be the case because the common law allows no claims with respect to substitute assets, and this makes the tracing exercise redundant. The notion that it is possible to trace at common law is contrary to properly understood authority and has no normative foundations. Its origins lie in a case that is now universally accepted as containing no common law reasoning. Despite this the right to trace at common law remains the prevailing orthodoxy. None of the cases cited in support of that orthodoxy have been satisfactorily explained. Th most significant ones fail to adequately deal with the inherent difficulties in treating money in a bank account as being the equivalent of a physical mixture of tangible assets. The lack of any proper normative explanation of the right to trace expounded in these cases makes their utility even more questionable. This thesis will argue that the rationale behind tracing is such that it can never be utilised to explain non-fiduciary liability.