TRUSTS IN THE RECOVERY OF MISAPPLIED ASSETS: TRACING, TRUSTS, AND RESTITUTION
The title of this chapter could include almost the whole of the law of restitution. Hence it is important in the first instance to establish a clear picture of the kind of situation in which we are interested. The key is the word 'misapplied', which has both a broad and a narrow sense. It might be taken to include, for example, even mistaken payments. It will be as well to set out one case which is within the broader meaning but of a kind with which we are not immediately concerned.
In Chase Manhattan Bank N.A. Ltd. v. Israel-British Bank ( London) Ltd.1 the plaintiff bank mistakenly paid more than $US 2 million to the defendant bank. It meant to pay one such sum, but because of a clerical error it repeated the payment. This misfortune was compounded when the recipient, the defendant bank, almost immediately went into liquidation. There was no doubt whatever that the plaintiffs were entitled to restitution. They obviously had a claim in personam, a personal claim that the defendants ought to repay the amount received. But that would have required them to join the queue of unsecured creditors. They wanted to trace the money and to claim an equitable proprietary interest in the traceably surviving proceeds. Goulding J. held that, if the exercise of identification could be successfully done -- that is, if they could on the facts trace -- they would indeed be entitled to assert an equitable proprietary interest.
For the purpose of defining our subject it is necessary to distinguish between the types of claim in play in Chase Manhattan and the facts upon which they arose. With the species of restitutionary claim illustrated in that case we are indeed directly concerned. But the Chase Manhattan facts are not directly in our sights because they involve only a simple two-party payment. The money was indeed misapplied, in the sense that it ended up where it was not intended to go, but it was not misapplied by any third hand. For present purposes, 'misapplied' will be used only in the narrower sense which supposes a misapplication by some third party not now before the court. The____________________