Proprietary claim

Proprietary claim

Right to assert an interest in property or its traceable proceeds

When proprietary claims arise

Where trust property is misapplied

Types of proprietary claims

Claim original property or traceable proceeds

Unmixed funds

Asset acquired entirely with trust money

Option (unmixed funds)

Claim beneficial ownership of asset

Option 2 (unmixed funds)

Assert equitable lien to secure personal claim

When asset increases in value

Claim ownership to capture gain

When asset decreases in value

Use lien + personal claim against trustee

Wrongful mixture

Trust money mixed with trustee’s own money

Option (wrongful mixture)

Claim proportionate share of asset

Option 2 (wrongful mixture)

Assert equitable lien

Effect of increase (wrongful mixture)

Claim proportionate share to gain increase

Effect of decrease (wrongful mixture)

Use lien to recover full amount first

Innocent mixture

Trust money mixed with innocent third party funds

Rule (innocent mixture)

Only proportionate share available

Reason

All innocent parties treated equally

Effect of increase (innocent mixture)

Each party shares gain proportionally

Effect of decrease (innocent mixture)

Each party bears loss proportionally

Multiple innocent parties

All share rateably, no priority+no cherry picking

Strategic choice

May sue trustee instead if more advantageous

Subrogation

Beneficiary steps into rights of secured creditor

When subrogation applies

Trust money used to discharge secured debt

Effect of subrogation

Beneficiary gains equivalent security interest

Defence

Purchaser for value without notice

Effect of defence

No proprietary claim against purchaser

Result

Claim only against traceable proceeds

If proceeds dissipated

No proprietary claim remains

Remaining remedy

Personal claim against trustee

Purchaser of value test

must acquire legal ownership + pay for value

Gift/Volunteer

Defence FAILS