Lapome Limited v Ross Kemp & Anor

Where a proprietary tracing claim raises a controversial question in a developing area of law, the court should ordinarily avoid strike out or summary determination if the issue depends on facts that have not been tested. This is particularly so where mixed trust and personal funds have been used to acquire assets and the claimant alleges that it should be able to select the tracing basis producing the best recovery. The rules in Re Hallett’s Estate and Re Oatway do not, without further analysis, settle the extent of any such selection against a wrongdoing trustee. The court should determine the issue on the facts established at trial, including the purpose and destination of payments from the mixed fund.

Lapome Limited alleged that Ross Kemp and K Capital Limited were liable for an undisclosed profit arising from the purchase and resale of property. The defendants accepted, for the application, that an account of the alleged profit would be required if the pleaded facts were proved. They applied to strike out the claim on the basis that an open offer exceeded the maximum recoverable amount.

The dispute concerned whether the claimant could trace trust money into assets acquired from a mixed bank account where the combined balance had not fallen below the amount received. The defendants relied on Turner v Jacob as binding authority against such a proprietary claim. The central issue was whether that question could properly be decided summarily on the limited and untested evidence.

1. The application was dismissed. The court would not determine summarily the controversial question whether a tracing beneficiary may select between the rules in Re Hallett’s Estate and Re Oatway where trust money has been mixed with the wrongdoer’s money and used to acquire assets.
2. The ordinary tracing principles were identified. Under Re Hallett’s Estate, expenditure from a mixed fund is presumed first to use the trustee’s money, subject to the lowest intermediate balance rule. Under Re Oatway, where mixed money is used to purchase an asset and the balance is later dissipated, the beneficiary may assert a charge or lien over the purchased property for the trust money applied.
3. The authorities and academic commentary showed that the law on the precise issue was unsettled. The comments in Shalson v Russo were expressly obiter, whereas the relevant passage in Turner v Jacob was treated in that judgment as part of its ratio. However, the earlier decision appeared not to have considered the competing reasoning in Shalson or Lord Millett’s observations in Foskett v McKeown.
4. The evidence was incomplete and untested. There had been no disclosure identifying the purposes or recipients of payments from the current account. It was therefore at least possible that some withdrawals had funded investments or asset purchases rather than dissipation. The issue should be decided on facts found at trial, not hypothetical facts.
5. The court did not determine that the claimant had the better argument. Any right to select a tracing remedy might be subject to temporal or other limits. The allegation that the claim was an abuse of process based on an improper motive was also rejected as incapable of proper assessment on the material before the court.