Lloyd's Maritime and Commercial Law Quarterly
RECOVERY OF MISAPPROPRIATED ASSETS: ORTHODOXY RE-ESTABLISHED?
Bishopsgate Investment Management v. Homan
Those who wish to recover misappropriated assets are constantly seeking ways of moderating the rigours of the requirements of tracing. Orthodox tracing rules require that, for the victim to assert a proprietary claim, the value1 misappropriated must be identified as subsisting in the assets into which he seeks to trace. The original assets may have been exchanged into other assets, once or a number of times, and the value may have passed through the hands of any number of people, but the link must still be shown. It must be shown for two reasons: first, to prove that the original value passed into the assets into which it is sought to trace and, secondly, to show that it is still there. Problems for victims thus fall into two categories: (a) the evidential difficulties of following value, particularly where active steps are taken by wrongdoers to hide its progress, and (b) the dissipation of value by the wrongdoer in a way that takes it outside the tracing exercise.
In Bishopsgate Investment Management Ltd. v. Homan,2 the problems for the victim were of the second kind. The plaintiff (BIM) was the trustee of various pension schemes for employees of companies run by the late Robert Maxwell. The defendants were the administrators of Maxwell Communications Corp. (MCC). The administrators had realized a number of MCC’s assets and wished to make an interim distribution. However, BIM claimed that it was entitled to an equitable charge, taking priority over the other creditors of MCC, on all the assets of MCC. The claim was founded on BIM’s allegations that large amounts of money had been wrongfully paid into accounts of MCC (and of other companies owned by Robert Maxwell) held at the National Westminster Bank. Clearly, if BIM could have shown that the money paid into the accounts was still there, even if mixed with other monies, they would have had a proprietary claim. However, in some cases the accounts were overdrawn when the payments in were made, and in other cases they subsequently became overdrawn. Thus, the value had been “dissipated” by MCC: it had been transferred to the National Westminster Bank, which was a bona fide purchaser for value without notice, and thus fell outside the reach of the tracing rules.
1. Since the original assets may have been exchanged for other assets of a different form, once or many times, it is convenient to adopt the terminology of “value” used by Professor Birks in An Introduction to the Law of Restitution (revised edn Oxford: 1989).
2. [1995] Ch. 211 (C.A.). BIM’s petition for leave to appeal to the House of Lords was dismissed [1995] 1 W.L.R. 31.
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