RnD Funding Pty Limited v Roncane Pty Limited

Background 5 Although the facts in relation to the overall litigation were complex, it is possible to isolate a relatively small portion of them for the purposes of this appeal. 6 RnD, which conducts business as a commercial lender, provided finance to ATG, a mining company, pursuant to what came to be known as "the First Facility". Its repayment was secured by a General Security Deed granted by ATG which created a revolving security. By cl 2.1 each Obligor, being the Grantor, ATG, and each Guarantor, provided security over their respective assets to secure repayment of the obligations secured. It read as follows: 2.1 Security interest (a) Each Obligor grants a security interest in its Secured Property to the Secured Party as security for the due and punctual payment of the Secured Moneys. (b) This security interest is a transfer by way of security of Secured Property consisting of: (i) Accounts and Chattel Paper which are not, or cease to be, Revolving Assets; or (ii) a Key Document. (c) To the extent any Secured Property is not transferred, this security interest is a charge. If for any reason it is necessary to determine the nature of this charge, it is a floating charge over Revolving Assets and a fixed charge over all other Secured Property. 7 The definition of "Secured Property" in the deed was as follows: Secured Property means in respect of each Obligor, all of the Obligor's present and after-acquired property (including without limitation the Relevant Property). It includes anything in respect of which the Obligor has at any time sufficient right, interest or power to grant a security interest. 8 By cl 2.5, upon the occurrence of a Control Event, ATG was obliged to deposit money in a particular account. It provided: 2.5 Proceeds (a) If a Control Event occurs, each Obligor must immediately and until notified otherwise by the Secured Party deposit in the Controlled Account any proceeds each Obligor receives in respect of any book debt, insurance policy and/or third party claims or any other debts or other amounts now or in the future payable to each Obligor. 9 The Controlled Account was defined as being: Controlled Account means in respect of the Grantor, a bank account opened by that Grantor in accordance with clause 2.4 with the details specified in the Facility Agreement. 10 Clause 2.4 provided, in part: 2.4 Controlled Account The parties acknowledge and agree that: (a) the Grantor shall open and maintain a bank account at a bank and branch approved by the Secured Party, as soon as reasonably practicable, but not more than seven business days from this deed, on terms that: (i) nominated Officers of the Secured Party must be signatories to the Controlled Account; (ii) no changes can me (sic [be]) made to the Controlled Account, including its signatories, without the consent of the Lender; (iii) no withdrawals can be made from the Controlled Account without the signature of one of those Officers; (iv) funds may be disposed of from the Controlled Account at the direction of the Secured Party without further consent by any Obligor … 11 Funds were advanced pursuant to the First Facility and, relevant to the present matter, by 15 October 2018, ATG was in default because the sum of $320,000 had not been repaid by that date. 12 It was not in dispute that, pursuant to cl 5 of the General Security Deed, the failure to repay the amount due under the First Facility was an "Event of Default", which was defined to include a breach of any Finance Deed; nor that the document pursuant to which the First Facility was provided to ATG was a "Finance Deed" within the meaning of the General Security Deed; nor that the breach of the Finance Deed amounted to what was defined as a "Control Event" under the General Security Deed. 13 It was a further requirement of the General Security Deed that RnD was to be a signatory to the Controlled Account and was entitled to use the funds in that account without the consent of ATG. 14 Subsequent to the occurrence of the Control Event, ATG received large refunds of GST which were received into and held in an account operated by it which was other than the Controlled Account referred to in the General Security Deed. 15 By cl 4.8 of the General Security Deed, if a Control Event occurred, the assets which were subject to the revolving security ceased to be available to the Grantor. It provided: 4.8 Revolving Assets If a Control Event occurs in respect of any Secured Property of the Grantor then automatically: (a) that Secured Property is not (and immediately ceases to be) a Revolving Asset; (b) any floating charge over that Secured Property immediately operates as a fixed charge; (c) if the Secured Property is Accounts or Chattel Paper it is transferred to the Secured Party by way of security; and (d) the Grantor may no longer deal with the Secured Property under clause 4.7. 16 It was submitted that the effect of this clause was to create a "locked box" in respect of ATG's assets once a Control Event had occurred. This appeared to be shorthand for the effect of the security upon default, including the disablement of ATG or other Obligors from using or dealing with any of their assets. In particular, it had the consequence that ATG was unable to use the funds in any account controlled by it. 17 By reason of the default and occurrence of the Control Event, the revolving security crystallised into a fixed charge, and ATG was no longer entitled to deal with its assets, including the money in its account. 18 However, rather than paying the accumulated funds in ATG's account into a Controlled Account, Mr Hillam, who was the controlling mind of ATG and Roncane at the relevant times, caused $520,000 to be transferred from the account, to the account of another company controlled by himself, namely, Prop Fest Pty Ltd (Prop Fest). 19 The funds in the account were then used to pay the purchase price for shares in Goldus Pty Ltd (Goldus) which were transferred to Roncane. Goldus was a joint venturer with Australian Mining Pty Ltd, which was a joint obligor with ATG under the General Security Deed. Goldus held the relevant interests in certain mining tenements and, due to the value of those interests, it or the shares in it became the target of RnD's claims. 20 The learned primary judge rejected Mr Hillam's evidence that ATG's advancing of money to or for the benefit of Roncane was consequent upon a loan agreement between them. That finding was not disputed on appeal. The matter can proceed on the basis that Roncane did not receive the funds or the benefit of them as a bona fide purchaser (or borrower) for value. 21 RnD claimed that it was entitled to trace its security interest in the funds held by ATG in its account into the shares purchased by Roncane. It further claimed that it was entitled to an order that the shares be transferred to it.

The decision of the primary judge 22 Despite the complexity of the factual circumstances, the learned primary judge synthesised them into the framework set out above and dealt with the tracing claim in that context. There was no suggestion that his Honour erred in this. He found (PJ [263]) that there were two fundamental issues to be determined. The first was whether the Control Event triggered the so-called "locked box" provisions, and secondly, if they were triggered, there was an issue as to whether RnD had a proprietary interest in the funds in the ATG account which could be traced into the Goldus shares acquired by Roncane.

The claims advanced by RnD 23 The learned primary judge correctly observed (PJ [263]) that the exact nature of the proprietary interest claimed by RnD was not precisely identified other than by the assertion that, on the occurrence of the Control Event, the funds belonged to it and that there had been a "theft" of the funds which could be traced to Roncane. That would seem to suggest that RnD's starting point was that it had a legal interest in the funds and that it was entitled to trace them through a number of bank accounts and into the shares. However, his Honour also recognised that RnD advanced an alternative claim which appeared to be derived from its security, being an entitlement to "an equitable charge over those shares by reason of its security" (PJ [260]). He also correctly found (PJ [295]) that the General Security Deed initially created a revolving (floating) security over the secured assets which turned into a fixed charge on the occurrence of a Control Event, as a result of which ATG was no longer entitled to use the secured assets. Later in his reasons (PJ [309]) he described the duality of RnD's claims as follows: The claim made by RnD Funding was based upon its security rights under the General Security Deed. It sought to characterise those rights as being ownership rights in respect of the secured property upon default by ATG but it claimed in the alternative that its interest as equitable chargee was a sufficient foundational property interest to be able to identify traceable proceeds as being the subject of its equitable charge.

The primary judge's consideration of the issues 24 His Honour considered the principles relating to tracing claims. There is no need to assay his analysis now although this Court and the parties before it derived considerable assistance from it. 25 His general conclusion was that in all cases, a tracing claim depends upon the presence of a foundational property claim. He accepted (PJ [266]) that tracing was a process which did not itself generate rights, so that the existence of some right in respect of property provided part of the justification for a claim to proceeds or value derived from it in the hands of third parties. As such the right to trace was described as "an incident of the underlying property right". Of the nature of the right he said (PJ [267]): … Despite the change in its character or its mixing with other property, the ownership rights of the original property trace their way into the new property. For that reason, the ability of a property owner to claim the traceable proceeds of property is part of the law of property: Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102 at 127 (Lord Millett). 26 His Honour reasoned (PJ [267]) that it was a consequence of this that the original owner's claim to trace to the substitute property or its proceeds may result in a proprietary remedy such as the imposition of a constructive trust, or the recognition of a charge or equitable lien and may also provide a foundation for personal claims, such as an account of profits or compensation. In that latter respect he was referring to claims against persons who owed equitable duties to the original owner of the original property as opposed to volunteers who had come into possession of it or its derivative. He then noted that "in all cases, a claim that depends upon the application of tracing principles must begin with a 'proprietary base'; that is, a foundational property claim": for which proposition he relied upon the Full Court's decision in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [560] - [561]. He then identified that a common law property right would be sufficient as would some equitable interests, and that the outcome of any claimed entitlement to trace will depend upon the nature of the foundational property interest. 27 As to the nature of "tracing links", he observed (PJ [274]) that the distinction between tracing at law and equity was eroding, and the real question was whether a sufficient causal connection had been established between the foundational property interest and the proceeds of that property. He then turned to consider the nature of the required foundational property interest and accepted (PJ [284]) that, whilst an equitable beneficial interest in trust property would be sufficient, the question in this matter was whether the right attaches to any equitable interest. He regarded this issue to be particularly pertinent since the nature of RnD's claimed right as against the shares held by Roncane's assets was obscure. It did not rely upon a constructive trust resulting from the commission of a wrong, or fraud, or deprivation of property consequent upon a breach of fiduciary duty. Rather, he found the claim was based upon the notion that the money which had been in ATG's account belonged to it although, as his Honour recognised, it may have become subject to an institutional constructive trust of the kind imposed upon money in the hands of a thief. 28 In reliance on the decision in Grimaldi v Chameleon Mining the primary judge concluded (PJ [288]) that, in the absence of a proprietary base "on the part of the claimant which takes the form of a vested beneficial interest in trust property, including such an interest that arises by reason of the recognition of a remedial constructive trust, there is an insufficient foundation for the tracing process". He further held (PJ [288]) that, in order to support tracing, equity required the presence of a property interest in the form of a vested beneficial interest in relevant property and that other interests, such as equitable liens, are insufficient. On this basis, he held (PJ [290]) that it appeared to be well-established that a fiduciary relationship is required before an equitable interest in property is sufficient to support tracing. 29 The primary judge accepted that ATG received $2,707,182 between July and November 2019 and that on 4 October 2019, it was then and thereby in a position to transfer $520,000 to Prop Fest for payment of Roncane's acquisition of the Goldus shares. He accepted (PJ [295]) that prior to the occurrence of a Control Event under the General Security Deed, given that the money so represented was a "revolving asset", ATG was entitled to use the credit in its account in the course of its business. 30 However, he found that once a Control Event occurred, such funds ceased to be subject to a floating charge and became subject to a fixed charge, so that ATG was no longer entitled to deal with them. By cl 5.4 of the General Security Deed, ATG's right to use any asset that formed part of the Secured Property ceased immediately. He also accepted that if there were a default under the First Facility Agreement, there would be a Control Event which would cause the General Security Deed to crystallise. 31 He then found that ATG was in default from 15 October 2018 under the First Facility Agreement as a consequence of its failure to repay an amount of $320,000. Although RnD also claimed that ATG had defaulted under a Second Facility Agreement, his Honour rejected that allegation (PJ [308]). 32 He then addressed the question of whether RnD's claim to the funds in the ATG account amounted to a sufficient proprietary foundation for a tracing claim. RnD had submitted that its rights were either rights of ownership or, at the least, an equitable charge and that either was sufficient. These submissions were characterised as saying that the money in the ATG account was RnD's property as a result of the "locked box" provisions of the General Security Deed. That referred to the operation of cl 2.5 of the General Security Deed which required that on the occurrence of the Control Event, ATG was obliged to pay into the Controlled Account money which it received, but ATG did not comply with it by reason of its default on 15 October 2018 in relation to the funds received by it. On the contrary, RnD continued to provide finance to ATG under the Second Facility Agreement and it was not until a year later that the transfer of funds to Prop Fest and then for the benefit of Roncane took place. During that time, ATG maintained its own account and ignored the locked box provisions, at least insofar as it failed to establish a separate "Controlled Account" as defined. RnD also took no steps to enforce those provisions or to insist upon compliance with them. 33 He found that the terms of the Controlled Account provisions did not, in the event of default, purport to create a trust for the benefit of RnD, but merely imposed obligations on ATG to place funds in the account as well as limits on what it might do with them. In any event, no funds were placed in the account. He then found (PJ [317]) that no attempt was made to explain how the funds in the ATG account, which had not been placed in the Controlled Account, became the property of RnD, nor why no attempt was made to enforce the security for many months. 34 He then addressed the consequences of the existence of the fixed charge over ATG's property. He accepted (PJ [319]) that "an equitable charge is a form of property right recognised in equity which may provide the foundation for a proprietary remedy" and (PJ [320]) that a person who takes the subject property with notice of it holds it subject to that right. However, he held (PJ [320]) that this was not the basis of RnD's claim, which was that it could trace a proprietary interest in the monies held in the "locked box" to the proprietary interest of Roncane as a shareholder of Goldus. Consequently, he held that a claim based on the security interest had not been established because (PJ [322]) "the claim by RnD Funding to the funds in ATG's bank account is not a proper proprietary foundation for the tracing based claim". 35 He then considered whether, had RnD established a proprietary foundation in the funds in ATG's account for the purposes of a tracing claim, it had also established that the Goldus shares were the traceable proceeds of those funds. Contrary to Mr Hillam's evidence, he found that the amount of $520,000 was paid from the ATG account to Roncane, via Prop Fest, to permit Roncane to acquire the shareholding of Goldus, which it did. He also found that Mr Hillam was the controlling mind of the companies and was aware of the default and that the security had crystallised. Though, prior to the transfer from ATG, there were existing funds in Prop Fest's account in an amount of $68,976.44 with the consequence that there was a mixing of funds during the carrying out of those transactions, his Honour reasoned (PJ [328]) that as Prop Fest was bereft of funds it would be appropriate to treat the funds received from ATG as having been passed on to Roncane to purchase the shares: Re Oatway; Hertslet v Oatway [1903] 2 Ch 356. In other words, the funds transferred to Roncane were entirely attributable to the funds paid from the ATG account. There was no appeal from that conclusion. 36 His Honour also found that Mr Hillam had deliberately sought to prevent RnD from discovering that ATG had received substantial amounts by way of the GST refunds for fear that it would have insisted upon compliance with the terms of the Second Facility Agreement; that the payment of the $400,000 by Prop Fest was for the purpose of discharging the purchase price of the Goldus shares transferred to Roncane; and that the payment secured other benefits such as various releases which were contained in the Deed of Company Arrangement which brought the administration of Goldus to an end. On that basis his Honour would have upheld the claim. He said (PJ [342]): Therefore, I find that the $400,000 that came from ATG passed through the hands of Prop Fest and was paid to the administrators of the DoCA in order to procure for Roncane the benefit of the shareholding in Goldus. It follows that if I had reached a different conclusion concerning Issue (19), I would have upheld the tracing based claim. 37 There was no Notice of Contention filed in relation to the primary judge's conclusion in paragraph [342]. For that reason there is no need in this case to address any issue as to the application of the tracing rules in relation to the transfer of funds from ATG's account for the acquisition of the Goldus shares other than that on which his Honour had decided the claim.

RnD's case before the primary judge 38 A not insignificant point in the appeal relates to the nature of RnD's case before the primary judge. 39 Some of the difficulties in this case arose from the parties' use in that Court of the vague expression "locked box" provisions. It appears that on occasions the primary judge considered that it was a reference to the "Controlled Account" provisions and that ultimately they were irrelevant because no funds were deposited to it. The consequence of this perception, that RnD's claimed right to trace was reliant upon money being held in the Controlled Account, was largely determinative of his Honour's rejection of the claim (PJ [315] - [316]). Otherwise, he held (PJ [317]) that there was no explanation of how RnD had acquired a proprietary interest in money held in ATG's other accounts so as to establish a basis for a tracing claim, and that no claim was advanced by RnD on the basis that an equitable charge arising from the terms of the General Security Deed gave rise to an entitlement to trace into the Goldus shares. 40 Mr Cook for RnD submitted that his Honour erred in his characterisation of the manner in which RnD advanced its tracing claim. He submitted that its reference to the "locked box" provisions referred to all of the provisions of the General Security Deed which, upon crystallisation, prevented ATG from dealing with those assets which were subject to it: the claim was not based only on the effect of the "Controlled Account". He further submitted that RnD advanced a case that it was entitled to invoke the tracing process to follow the funds in ATG's own account which were then subject to the fixed charge. He took this Court to several passages in the transcript of the hearing before the primary judge and indicated where, in his submissions, this broader case was articulated. At ts 216 - 217 of that transcript the following is recorded: HIS HONOUR: I'm talking about - I'm actually talking about his - I understand the position in relation to Prop-Fest, its derivative, from he knew as a director of Goldus, and I'm identifying what you rely upon to establish knowledge of Mr Hillam as a director of Goldus. MR COOK: I don't need to establish anything of knowledge at that level. My case is simply this, in equity the secure (sic) property is now my property in the bank account of ATG. It may not be dealt with by ATG. It is now my security and it may not be dealt with by ATG and if ATG were to deal with it, I would be able to say, "That's my security, give it back to me". HIS HONOUR: Well it's my property, or it's property impressed with my security interest. MR COOK: Yes. … MR COOK: So the only time knowledge could be relevant to any of this, because we're dealing with looking for where my security is. Because wherever my security is, I can go and pick it up from whoever has got it. If whoever has got it says, "I gave consideration without notice of your entrant (sic) [interest]" - if I bought it from Mr Hillam and I wasn't on notice that this was your property, then my tracing remedy was killed. It comes to an end. I've lost it; I've lost my property. 41 A similar case was advanced during the course of Mr Cook's address (ts 52): So the case in relation to Roncane is put on a very simple basis. It is that because both ATG, Prop Fest and Roncane are all Hillam entities with Mr Hillam, the director, doing all the transactions, all three know that the money in the ATG bank account from the ATO was not to be dealt with. It was part of my client's security. It was a breach of that covenant to dealt with that security. That money was impressed for the security interest when it flowed out to ATG in to Prop Fest's account. It remains impressed when it is used to discharge the purchase price for the Roncane shares and one traces into the Roncane shares and Goldus that security interest. 42 Both passages attempt to agitate a claim that RnD held a security interest in the funds in the ATG account and was entitled to trace it to any asset taken in substitution. That is consistent with the manner in which the issue was articulated in the amended statement of claim. 43 Although for this Court Mr Cook was able to isolate one of the claims which RnD made before the learned primary judge, it was not so clearly made below. Not only was its tracing claim based on its security interest part of broad and complex litigation, it was somewhat obscured by the manner in which other avenues of tracing claims were argued in conjunction with it. In particular, its claim that it was entitled to a remedy which would deliver the Goldus shares in specie to it was misguided and tended to obscure the nature of RnD's original interest in the funds held in the ATG account. That assertion suggested that RnD was claiming that the security worked to vest in it the title to the funds in the ATG account as opposed to merely a security interest. Nevertheless, it should be accepted that it did advance a claim that it was entitled to trace its interest into the Goldus shares in reliance on its security interest in the funds held by ATG in its account. 44 It might be supposed from paragraphs [319] to [342] of his reasons that the primary judge would have allowed such a claim had he recognised that it had been articulated.

The foundation of the right to trace 45 Central to RnD's submissions was that the primary judge erred in concluding, at [288] of his reasons, that "[e]quity only affords the characteristics of property that allows for tracing into the hands of third parties where the interest takes the form of a vested beneficial interest in trust property" and at [290] that, "there appears to be no Australian decision that has embraced a complete departure from the requirement that there must be a fiduciary relationship before tracing can apply on the basis of an equitable foundation." 46 It was submitted that this conclusion was founded upon a misreading of the decision in Grimaldi v Chameleon Mining at 417 - 418 [562] - [567], 669 [669] which did not purport to lay down any such rule. Nevertheless, his Honour held that the right asserted by RnD was not a right akin to a vested beneficial interest in respect of which RnD could invoke the principles of tracing in order to claim an interest in the Goldus shares. 47 This principal ground of appeal raised an issue as to the nature of tracing in equity and, in particular, the character of those rights or interests which are sufficient for those entitled to them to have recourse to tracing. Specifically, it raised the question of whether there exists any precondition of the presence of a fiduciary duty from which the original interest in property arose.

The tracing issue in question on appeal 48 An analysis of the authorities reveals that tracing claims generally require the following: (a) that the party seeking to trace has held an original proprietary right or claim in respect of property or, possibly, was owed an obligation by another person who had control of property in which that party claims to have a right; (b) that there occurred an unauthorised disposition or dispositions of the original property; and (c) that the claimant seeks the application of the tracing rules to establish an entitlement to a proprietary interest in an asset identified as a substitute for the original property by establishing the tracing links between the original property and any substitutions for it. 49 This appeal primarily concerns the first of these issues, that is, whether RnD had a right or interest in property or an entitlement to the performance of an obligation which affords it the ability to invoke the tracing process. There are many diverse theories as to the precise nature of that necessary interest or right, particularly because of its inexorable linkage to the underlying rationale for the right to trace, the basis of which is, itself, greatly contested. However, those theories which tend to dominate the debate argue that the right derives from the claimant's original interest or rights in the property which has been misapplied or, conversely, that the right to trace is derivative upon the existence of a fiduciary duty owed to the claimant in respect of the original property. 50 "Tracing" is an imprecise term which is not capable of exact legal definition, as was observed by the Hon JC Campbell QC in 'Republic of Brazil v Durant and the equities justifying tracing' (2016) 42 Australian Bar Review 32, 50. Though it has been used to denote a variety of legal claims and processes, in the present matter, it refers to that form where the owner of misapplied property seeks a proprietary remedy over different property as a substitute for their original property. This was referred by Campbell QC, op. cit., as being "archetypal tracing". 51 There is a distinction between the nature of the right which gives rise to tracing and the principles relating to "tracing links" by which it is determined whether the claimant's original property rights are manifest in different property. If the original property were exchanged in some way for new property the tracing link of direct substitution applies to the new property: Re Lovett [1966] VR 65, 70. Of greater complexity are the equitable rules which permit tracing through bank accounts containing other funds: Toksoz v Westpac Banking Corporation (2012) 289 ALR 577. Although the respective concepts of the nature of the interest or right giving rise to the ability to trace and the tracing links are separate, the latter is necessarily derivative upon the former.

Tracing as a process 52 There is considerable historical debate as to the nature of tracing. It has been frequently described as a claimed right, as in the expression "tracing claim", or a remedy. However, it is now generally characterised as a "process" or evidential exercise by which a person who once owned a relevant property right in an asset or thing, demonstrates that another thing in the hands of a third party is so clearly the derivative of the original thing that the owner's original right now attaches to it. It is often said that tracing does not create rights ex nihilo, but merely allows them to be transmitted from one asset to another: Grimaldi v Chameleon Mining at 417 [560]: although, as the discussion above has indicated, that is not universally accepted. 53 The analysis of tracing as an evidential process was articulated by Allsop P (Campbell JA and Handley AJA agreeing) in Heperu Pty Ltd v Belle (2009) 76 NSWLR 230, 252 [89]: Tracing has been said to be neither a claim nor a remedy, rather the process by which a claimant demonstrates what has happened to its property, identifies its proceeds and the persons who have handled or received them; and the successful completion of a "tracing exercise" may be a preliminary to the making of a personal or proprietary claim, to the extent such is available: Foskett v McKeown [2001] 1 AC 102 at 128, per Lord Millett, approved and applied by Spigelman CJ in Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75 at 103 [133] (with whom Handley JA and Santow JA agreed). 54 It might be said that it is a tool which is used to vindicate or enforce proprietary rights and, in that sense, is different in principle from claims seeking compensation or remediation of the loss of a right. As an evidential process for confirming that an original owner of property can assert their original interests in different property, it does not provide a remedy. It is one thing to make out the tracing links so as to identify the migration or transmogrification of a property or proprietary right, but it is another to find that it is superior to all others which may have attached to that property. 55 Whilst tracing might well be considered a process, that description should not deny it all substantive character. In it, the evidencing of the sequential transactions involving a misappropriated asset or its proceeds, carry latent assumptions about the endurance of the rights relating to that asset as they inhere in other assets which are the transmuted products of those transactions.

The requirement of the traceable proprietary right 56 In this Court RnD submitted that the primary judge erred in his conclusion that the claimant was required to initially have held a vested beneficial interest in a trust or some analogous right as against a fiduciary. Whilst it did not make any substantive submission on what precisely was meant by the expression "vested beneficial interest", it would seem that the expression connotes the interest of a vested beneficiary under a fixed trust. Though such a strict definition would be illogical since it is well accepted that the interest generally required extends to that of a person whose fiduciary has breached their duty and holds property on a constructive trust for them. In any event, the learned primary judge equated the interest of a person under a constructive trust with that of a beneficiary of a fixed trust. As the following discussion discloses, so much may be accepted, but the important question is whether that describes the limit of those rights in respect of which the process of tracing might be invoked.

Historical support for a pre-existing fiduciary relationship 57 There is historical support for the view that only a party with a pre-existing equitable proprietary interest derived from a fiduciary relationship might invoke the right to trace in equity. The decision of Sir George Jessel MR in In re Hallett's Estate (1879) 13 Ch D 696, 710 has been taken to stand for the proposition that in order to trace in equity it is necessary for the claimant to show that the property from which the right to trace originated was held by a fiduciary to the claimant. However, that early limitation of the right to engage in tracing has been significantly eroded and, it might be said, the requirement of a fiduciary relationship was not intended by the Master of the Rolls as a limitation but rather as a method by which an equitable interest was created which might be protected in a court of Equity. 58 Whilst the Court of Appeal's subsequent decision in In re Diplock [1948] Ch 465, 540 also held that the right of equitable tracing was predicated upon there being "some initial fiduciary relationship because the right to trace was founded upon the existence of a beneficial owner with an equitable proprietary interest in property in the hands of a trustee or some other fiduciary agent": Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch D 105, 113, 118: its scope may not be so restrictive. That case was concerned with the unintentional wrongful disposition of the property of a deceased's estate in circumstances where the Will was subsequently held to be invalid. The estate had been distributed by the sending of cheques to 139 charitable institutions which paid them into their operating accounts, some of which retained sufficient funds to pay the claims against them whilst others had been drawn down and the funds used for the purposes of the charity, including building work. For present purposes it is not necessary to consider the Court's acceptance of the in personam claim against the recipients of property wrongfully distributed from a deceased's estate. The significant point was its conclusion that equity permitted tracing into and through a mixed fund, though the party that did the mixing did not owe any fiduciary duties to the original owner of the funds but had received them as a volunteer. 59 At first instance, it had been held that tracing could occur only where parties who had engaged in the wrongful disposition of property or the mixing of funds had themselves owed a fiduciary duty to the property's owner. That was rejected by the Court of Appeal, which held that the effect of the decision in Sinclair v Brougham [1914] AC 398 was that a person whose money has been wrongfully mixed with that of another was entitled to trace into the mixed fund so long as, inter alia, "there was originally such a fiduciary or quasi-fiduciary relationship between the claimant and the recipient of his money as to give rise to an equitable proprietary interest in the claimant". 60 The requirement of a fiduciary relationship was apparently necessary for two reasons. First, the circumstances where tracing is available has to be distinguished from those where legal ownership of the funds is simply placed in the hands of a third party, such as a debtor / creditor relationship or such other similar relationship. In those latter circumstances, tracing is not available as the party holding the property or funds would not be prevented from setting up their own title. Secondly, the claimant's right needed to be equitable in order to trace the funds into or through a mixed bank account which was not available in common law tracing. The Court of Appeal also found that relationships which carry an entitlement to trace include those between trustees and beneficiaries, executors and legatees, or quasi-fiduciary relationships such as those between principals and agents. Earlier, the Court had indicated that equitable tracing became available where the claimant was able to point to "the existence of a fiduciary or quasi-fiduciary relationship or of a continuing right of property recognised by equity" (at 520). That statement may be less than precise, but the words, "or of a continuing right of property recognised by equity", were obviously used to indicate that the right to trace was not limited to a trust or fiduciary relationship. To a similar effect are its observations at 525 where it referred to the powers of equity to "protect and enforce what it recognises as equitable rights of property which subsist until they are destroyed by the operation of a purchase for value without notice". 61 Then (at 526) the Court said: The error into which, we respectfully suggest, the learned judge has fallen is in thinking that what, in Hallett's case was only the method (there appropriate) of bringing a much wider-based principle of equity into operation - viz., the method by which a fiduciary agent, who has himself wrongfully mixed the funds, is prohibited from asserting a breach of his duty - is an element which must necessarily be present before equity can afford protection to the equitable rights which it has brought into existence. We are not prepared to see the arm of equity thus shortened. (Footnotes omitted). 62 Later in their Lordships' reasons (at 530) the general principle was stated as follows: … equity may operate on the conscience not merely of those who acquire a legal title in breach of some trust, express or constructive, or of some other fiduciary obligation, but of volunteers provided that as a result of what has gone before some equitable proprietary interest has been created and attaches to the property in the hands of the volunteer. 63 The import of In re Diplock was that the equitable interest in respect of property, derived from an original fiduciary duty, generated a right to trace which persisted, even where the property or its proceeds had passed to a third party, such as a volunteer who may have mixed funds they had received. This enlarged scope of the right to trace tends to indicate that it does not necessarily rely upon the duties and obligations of only a trustee or fiduciary. This was a not insignificant departure from the previously assumed position which had been reflected in the reasons for judgment of Winn-Parry J, namely that the entitlement of the beneficiary to a proprietary remedy was steadfastly founded upon the continuing fiduciary obligations of the person in possession of assets of which another held an interest. This extension of tracing into property in the hands of a third person, other than a bona fide purchaser for value without notice, might suggest that the foundation of the right to trace is based more broadly on the continuing rights of property of the original owner. 64 The approach in In re Diplock had been presaged by the Australian High Court's decision in Black v S Freedman & Company (1910) 10 CLR 105. There, a husband had passed money he had stolen from his employer to his wife, who received it as a volunteer, and the employer claimed to trace it to funds remaining in the wife's account into which it had been placed. Griffith CJ (with whom Barton J agreed) appears to have applied the observations of Sir George Jessel MR in In re Hallett's Estate at 708 as to the tracing of property, including into the proceeds of the sale of that property, which had been wrongfully disposed of by a person in a fiduciary position. Griffith CJ also accepted that the proceeds can be traced into the hands of a person who takes them as a volunteer and mixes them in their own account. O'Connor J (at 110) held that the thief of the funds held them on trust for the owner and that they retained their character as trust assets when passed to a third person volunteer who was not a bona fide purchaser for value and it was irrelevant whether or not they had notice of the original misappropriation. There was, with respect, some paucity of express reasoning as to why the former fiduciary's obligations appeared to become owed by the recipient of the money. 65 Thus far, the development of an entitlement to trace was an expansion from the remedy against a person who owed the holder a relevant fiduciary duty, to a volunteer who was not a purchaser for value without notice when there was a relevant antecedent fiduciary relationship in respect of the property in the volunteer's hands. 66 The expansion of the scope of tracing continued through the speeches in the House of Lords in Foskett v McKeown [2001] 1 AC 102 and, in particular, through that of Lord Millett, where his Lordship reaffirmed the requirement of an antecedent fiduciary duty as a prerequisite to tracing, albeit casting serious doubt on its necessity. The facts of that case need be only briefly stated. The plaintiffs, who were resident in the United Kingdom, were investors in a property development in Portugal. A Mr Murphy was the promoter and controller of the development company. The investors paid approximately £2.6million in respect of their prospective plots of land in the development, which sum was to be held by Mr Murphy and an associate on an express trust until the development was completed. No development took place and the trust moneys were misappropriated. In particular, Mr Murphy had used £20,440 of the investors' trust funds to pay the final two of five premiums for a life insurance policy over his life and his children were the principal beneficiaries. Following his death, the insurer distributed a benefit of approximately £1million to the named beneficiaries and the investors claimed a right to trace their funds into the amount paid out under the policy. They claimed a proportionate interest in it corresponding to the proportion which the amount of the premiums paid with their trust moneys bore to the total premiums paid. 67 The Court of Appeal accepted that the misappropriated trust funds could be traced to the payment of the insurance premiums, but not to the policy or the amount paid out under it. The House of Lords allowed the appeal and the leading speech was delivered by Lord Millett. There was no question that a right to trace existed. The funds had been held on an express trust and had been misappropriated, so that a recognised right to trace existed. The major point of the decision concerned the nature of the "tracing links" which apply when money passes though accounts and is used to acquire substitute property. 68 In his analysis of the nature of tracing, Lord Millett explained (at 127) the process as one of locating assets which "may be taken to represent an asset belonging to the plaintiffs and to which they assert ownership", or as one "of identifying a new asset as the substitute for the old". He recognised that a claimant is asserting a "continuing beneficial interest" in the substituted asset as the result of a transmission of their property rights from the original asset to it. The process was part of the law of property rather than one of unjust enrichment. 69 This view was emphasised by his Lordship's observation that the right to trace derives from the plaintiff's property rights (at 127): A beneficiary of a trust is entitled to a continuing beneficial interest not merely in the trust property but in its traceable proceeds also, and his interest binds everyone who takes the property or its traceable proceeds except a bona fide purchaser for value without notice. In the present case the plaintiffs' beneficial interest plainly bound Mr Murphy, a trustee who wrongfully mixed the trust money with his own and whose every dealing with the money (including the payment of the premiums) was in breach of trust. It similarly binds his successors, the trustees of the children's settlement, who claim no beneficial interest of their own, and Mr Murphy's children, who are volunteers. They gave no value for what they received and derive their interest from Mr Murphy by way of gift. 70 His Lordship held (at 128) that the interest which attaches to substitute property follows the "value" inherent in the original property; and that tracing was merely the process by which the claimants demonstrate what has happened to their property and its inherent value, and identify it as such by reference to the persons who have been involved in its transmission. That allowed them to substitute identifiable property (the proceeds) as the subject matter of their property claim. 71 That analysis is founded solely upon the preservation of rights in or in respect of property despite unauthorised dealings with the property in question and, in no way, relied upon the existence or nature of any fiduciary duty owed to the owner of the right. It is, therefore, not surprising, that in relation to the issue of whether it was necessary that there be a fiduciary relationship between them and a person who misappropriated property his Lordship observed at 128 - 129: Given its nature, there is nothing inherently legal or equitable about the tracing exercise. There is thus no sense in maintaining different rules for tracing at law and in equity. One set of tracing rules is enough. The existence of two has never formed part of the law in the United States: see Scott on Trusts, 4th ed (1989), section 515, at pp 605-609. There is certainly no logical justification for allowing any distinction between them to produce capricious results in cases of mixed substitutions by insisting on the existence of a fiduciary relationship as a precondition for applying equity's tracing rules. The existence of such a relationship may be relevant to the nature of the claim which the plaintiff can maintain, whether personal or proprietary, but that is a different matter. I agree with the passages which my noble and learned friend, Lord Steyn, has cited from Professor Birks's essay "The Necessity of a Unitary Law of Tracing", and with Dr Lionel Smith's exposition in his comprehensive monograph The Law of Tracing (1997): see particularly pp 120-130, 277-279 and 342-347. 72 His Lordship, however, considered that, given that it was clear that the beneficiaries' interests were the subject of a fiduciary relationship, the case before the House was not the occasion to explore those matters further. 73 The speech of Lord Browne-Wilkinson identified that the plaintiffs' claim was based upon their equitable proprietary interest in the identified property, and (at 108) that the proprietary interests which existed in the funds in the trust "now exist in any other property which, in law, now represents the original assets". Those equitable interests were enforceable against whoever held those assets. The tracing rules were to be applied to ascertain whether there was any property which represented or consisted of any part of the original trust assets so that any equitable interests in them would apply to the substitute asset. His Lordship described (at 108) this process as being concerned with "hard-nosed property rights". Lord Hoffman who generally agreed with Lord Millett's reasons, also recognised the process as simply a vindication of property rights (at 115). 74 The concept of tracing "value" has persisted since Lord Millett's mention of it, though questions have been raised as to its precise meaning. It is sufficiently clear that it does not refer to "market value" or the dollar equivalent value of the property at the time of substitution. Rather, value "reifies that which inheres in an asset and which can be seen as passing into another form when that asset is exchanged for another asset": Professor Lionel Smith, The Law of Tracing (Oxford University Press, 1977) 16. See also the discussion of the nature of value in Claims to traceable proceeds: Law, Equity and the Control of Assets by Dr Aruna Nair, (Oxford University Press, 2018) 57 - 82. This would appear to be self-evidently correct. Were a trustee to misapply $10,000 of trust funds to acquire a painting which then increases in value, the trust's beneficiaries should be entitled to trace their interest to the painting's worth rather than merely $10,000. 75 In his reasons at [290] the primary judge referred to the earlier decision of Lord Millett, then Millett LJ, sitting as a member of the Court of Appeal in Boscawen v Bajwa [1996] 1 WLR 328. His Lordship there expressed the opinion (at 33) that it was "still a prerequisite of the right to trace in equity that there must be a fiduciary relationship which calls the equitable jurisdiction into being: see Agip (Africa) Ltd. v. Jackson [1991] Ch. 547, 566, per Fox L.J." Whilst that appears to remain the position in England, there is a degree of tension with the later observations in Foskett v McKeown. 76 Some assert that a similar, but less stringent, position seems to persist in Australia. Although where that view is accepted, it has been held that whilst a pre-existing fiduciary relationship is necessary, it is not imperative that the relationship be replete with the established duties of absolute loyalty. Rather, a relationship of a lesser nature may suffice which may be limited to specific elements of a broader relationship: see the discussion in Mohammud Jaamae Hafeez-Baig and Jordan English, The Law of Tracing (Federation Press, 2021) 153 [5.106]. 77 In CFHW Pty Ltd v Burness [2014] VSC 451 [35] Warren CJ said that, "the authorities make it clear that in order to rely on equitable tracing and the subsequent constructive trust, the party seeking that remedy must show a breach of fiduciary duty". The Chief Justice cited In re Diplock in support of that proposition. 78 In the earlier decision in Grimaldi v Chameleon Mining the issue was whether tracing was available in relation to misappropriated corporate property which had not been held on a specific trust. The Full Court accepted (at 417 [560]) that if a party wishes to trace it must first establish proprietary rights in the asset lost, a "proprietary base", as the source of the proprietary right. It was further observed (at 417 [562]) that: When trust property in the strict sense is transferred into the hands of a person other than a bona fide purchaser for value without notice, little difficulty arises in following the property into that person's hand and in tracing it into other property which is its substitute. The antecedent entitlement of the trust beneficiaries will in the usual case permit both following and tracing because it will establish the required property base in the asset in the recipient's hands. (Emphasis as per original). 79 The reference to an "antecedent entitlement" was a reference to the plaintiff's entitlement or proprietary interest in the trust property which existed prior to the occurrence of any misappropriation of the property. The difficulty for the claimant in Grimaldi was that there was no antecedent trust relationship in relation to misappropriated corporate property which might have given rise to a pre-existing equitable beneficial interest. The disposal of property by the company's directors causes complete title to be taken from the company and vested in the third party recipients even when the transaction is within the authority of the directors albeit not in the company's interests or is in breach of the directors' fiduciary duty. In overcoming the absence of any antecedent equitable interest, the Court relied upon an analogy, drawn in Belmont Finance Corporation v Williams Furniture Ltd (No 2) [1980] 1 All ER 393, 405, between an existing trust and the creation of a trust relationship when a fiduciary misapplies property. In Belmont Buckley LJ had said: A limited company is of course not a trustee of its own funds; it is their beneficial owner; but in consequence of the fiduciary character of their duties the directors of a limited company are treated as if they were trustees of those funds of the company which are in their hands or under their control, and if they misapply them they commit a breach of trust (Re Lands Allotment Co [1894] 1 Ch 616 at 631, 638, per Lindley and Kay LJJ). So, if the directors of a company in breach of their fiduciary duties misapply the funds of their company so that they come into the hands of some stranger to the trust who receives them with knowledge (actual or constructive) of the breach, he cannot conscientiously retain those funds against the company unless he has some better equity. He becomes a constructive trustee for the company of the misapplied funds. 80 This was applied in Grimaldi where it was found that the third party's knowing wrongful receipt of misappropriated company property had the consequence that it held the property as a constructive trustee for the company, with the result that there would be a corresponding equitable proprietary interest permitting the invocation of equity's tracing rules to trace the property and proceeds including through a mixed fund. Clearly, the Court did not regard the existence of an antecedent equitable proprietary interest as being a requirement for tracing. It concluded (at 418 [567]) that although it would ordinarily award such proprietary relief where a party has been knowingly involved in a breach of fiduciary duty, as a matter of principle it retained a discretion not to do so. See generally the discussion of the proprietary claims which arise consequent upon a breach of fiduciary duty in Twigg v Twigg [2022] NSWCA 68 at [203] - [244]. 81 It was submitted for RnD that Grimaldi did not conclude that tracing in equity was only available where a party held a foundational property interest which arose out of a trust or fiduciary relationship. That would appear to be correct. It decided merely that an equitable interest in property arising consequent upon a breach of a fiduciary duty is one in respect of which the right to trace in equity arose. It did not conclude that the right was confined to only those types of interests. As the primary judge in the present matter noted, the Full Court in Grimaldi was concerned to ascertain whether the company whose property had been misappropriated, retained any equitable interest in it. 82 Support for the above might be seen in the earlier decision in Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75. A fraudster had deposited money in a Vanuatu bank which had been opened in the name of Benford Ltd. At the same time, the bank deposited an equivalent amount with Citibank Ltd in Australia in its own name which seemingly was to benefit Benford Ltd. The receiver of Benford's assets commenced proceedings alleging that the debt owed by Citibank to the bank in Vanuatu was held on trust for Benford. It was accepted that Benford held the debt in the bank in Vanuatu on trust for the defrauded individuals on principles akin to those referred to in Black v S Freedman & Co. Further, Spigelman CJ (with whom Handley and Santow JJA agreed), accepted that it was possible to draw a sufficient connection between the deposit of funds in the bank in Vanuatu by Benford and the opening of the account with Citibank. He noted that Benford's right to trace was one of property law which arose on the basis that it was the legal owner of the chose in action, being the debt owed by the bank in Vanuatu. However, he added that the concept of "a right to trace" was misleading and ought not to be confused with a "proprietorial right" (at 103 [134]). On the facts of the matter before the Court (at 103) Benford, by the receiver, did not claim to be a beneficiary seeking the property which its fiduciary acquired with trust property. Rather, it was seeking to make an election to recover property (being the debt owed by Citibank to the Bank in Vanuatu) held by a third party which was causally linked to the property to which it remained beneficially entitled. He concluded (at 104) that the asset, being the interest in the Citibank account, was not a substitute for the original asset, being the interest account with the bank in Vanuatu. The indebtedness of the Vanuatu bank, constituting Benford's chose in action, remained intact and there was no occasion on which the value inherent in it was transferred to or became represented by the deposit in the Citibank account. It was not possible, his Honour held, to separate an equitable estate from the legal interest in the deposit in the bank in Vanuatu and then trace it into the deposit with Citibank. In essence, this was merely a case about the inability of the plaintiff to establish a sustainable tracing link. Benford's asset, by way of its interest in the Vanuatu's bank's indebtedness to it, was not appropriately linked to Citibank's indebtedness to the Vanuatu bank to support a substitution of the latter for the former for the purpose of tracing. The Vanuatu bank's deposit to the Citibank account of funds which had come into its possession for value and without notice, was merely the use by it of funds in the ordinary course of its banking business and the use by it of its own funds. They did not bear the character of Benford's funds which had been received by the Vanuatu bank and exchanged for the chose-in-action. 83 For present purposes, however, the Chief Justice added (at 104 [141]), "The intervention of equity requires the identification of a duty or interest arising pursuant to the doctrines of equity". He then said (at 104 [143]): In the present kind of case, in my opinion, the legal owner of property who has a good claim at law cannot elect to trace in equity, at least in circumstances in which no issue of solvency of the person who owes the obligation at law has arisen. 84 It was critical to the outcome in this case that Benford held no separate identifiable equitable interest in the chose in action, being the debt owed by the bank in Vanuatu. It held legal title to it and there had been no improper transfer of that chose in action or any part of it, and nor was any transfer the result of any breach of fiduciary duty. Nor did Benford have any continuing interest in the "funds" which it deposited with the Vanuatu bank which could be traced. Once deposited, they became the property of the Vanuatu bank which provided the consideration of the promise to pay the amount outstanding in Benford's account in accordance with the terms and conditions of that account. At the time the funds were deposited to the Citibank account they belonged solely to the Vanuatu bank and Benford had no interest in them. 85 Nevertheless, the Chief Justice's comment that in order for Benford to be entitled to trace it needed "a duty or interest arising pursuant to the doctrines of equity" (emphasis added) is effectively the equivalent of the observations in In re Diplock that what is required is "the existence of a fiduciary or quasi-fiduciary relationship or of a continuing right of property recognised by equity". Neither comment limits the availability of tracing only to where there is a pre-existing trust or fiduciary relationship. They each appear to accept that a sufficient equitable interest in property, regardless of the manner or method by which it was created, is enough in respect of the nature of the claimant's necessary equitable interest. 86 Thus far, on the issue of the nature of that interest, one can discern the two divergent approaches. On the one hand, that the party seeking to trace must have an equitable beneficial interest in property created by the existence of a trust or fiduciary duty owed to them. On the other hand, all that is required is a sufficient equitable interest in the property which has been misapplied, regardless of how it was created.

The justifications for the fiduciary relationship requirement 87 Before turning to the arguments which support the view that the only requirement for tracing in equity is the existence of a sufficient equitable interest, it is appropriate to consider the veracity of the justifications which have been advanced for the requirement of a pre-existing fiduciary duty. One, which is identified in Hafeez-Baig and English, The Law of Tracing, op. cit., 116 - 117 [5.3] - [5.4], is that in such circumstances the person in whose hands the property is held following an unauthorised disposition is under a corresponding and continuing duty to hold it for the benefit of the owner. If that person were to breach that duty and exchange the asset for another, the original obligation extends to do the "next-best-thing" in consequence by holding the newly acquired asset for the owner in accordance with the original duties. The obligation does not dissipate merely because the trustee has breached that duty by exchanging it for different property. The fiduciary is obliged to do "the nearest practical equivalent" to restoring the property to its original state: See the observations of the Hon JC Campbell QC in the article, 'Republic of Brazil v Durant and the equities justifying tracing', 58 - 59; See also Evans v European Bank at 106 - 107 [159] - [166]. This theory centralises the continued existence of equitable duties as the essence of tracing and carries with it the concept that any resulting proprietary relief is solely the in personam enforcement of the continuing equitable duty. 88 That view was effectively rejected by Lord Millett in Foskett v McKeown at 128, on the basis that the right to trace is inherent in the nature of the proprietary right or interest of the original owner and it attaches to any property which is wrongly substituted for it. This has the virtue that the equitable obligation to restore or maintain the property interest by holding the proceeds of the substitution on trust (in distinction to other in personam duties) is limited to only that amount which remains in the substituted asset. The same applies in relation to a third party volunteer who receives property in which another has an equitable interest. If the property is then disposed of and nothing is taken in substitution, there is no property to which tracing can apply. In other words, the obligation falling on the title holder of the property can be related only to the residue of the original owner's proprietary right which remains identifiable in property which is sufficiently linked to the original property. It necessarily follows that the right to trace cannot be dependent or solely dependent on the existence of some equitable obligation owed by a recipient of wrongly misapplied property. In all these, the point of tracing is to target property, and the respective parties' conduct is relevant only to issues as to whether tracing will be permitted. The target is limited to property and not to compensation by the wrongdoer or the recipient of property. The remedy, as distinct from its availability, is concerned only with property interests. 89 Another justification for the proposition that a right to trace in equity depends upon the existence of a prior fiduciary duty, is that it is necessary for the invocation of a court's equitable jurisdiction and the application of equitable tracing rules: Agip (Africa) Ltd v Jackson [1991] Ch 547, 566; Boscawen v Bajwa [1996] 1 WLR 328, 335; El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717, 733. 90 The difficulty with this is that where a party is the holder of an equitable proprietary interest they are, ex hypothesi, not the holder of the legal title of the property in question. Were they to become so, no independent equitable ownership would exist. For that reason, where a party has an equitable interest in property there must exist another who had control or stewardship over it by virtue of their legal title. This bifurcation of the interests has the concomitant consequence that the holder of the legal title has some obligation to the holder of the equitable interest. Such obligations may arise from both the terms of the transaction giving rise to the relationship and the inherent consequences of the proprietary interests which are created. Importantly, once the equitable interest is created, there is nothing to prevent the holder of that interest from invoking a court's equitable jurisdiction to enforce or protect it. 91 It seems, therefore, to follow that most equitable interests in property satisfy the above identified rationales for the existence of a fiduciary duty. The holder of the equitable interest can rely on the equitable obligations imposed upon the holder of the legal title or person in control of the property to justify in personam enforcement of equitable obligations and to invoke equitable rules of tracing and equitable remedies. The foregoing slightly reflects a generalised but perhaps inaccurate summation of the careful analysis found in Dr Nair, Claims to traceable proceeds: Law, Equity and the Control of Assets, op. cit. In that work the learned author argues that the presence of a proprietary interest is insufficient to justify an entitlement to trace, but neither is it necessary for there to be a trust or fiduciary relationship in the sense of one person owing the other a duty of single-minded loyalty. Rather, she identifies the common thread through the authorities is that what is required is the existence of a relationship whereby one person has control or power over another's interest in property with the ability to destroy that other's title, and a concomitant duty not to do so. Whilst trust relationships as well as fiduciary relationships in the broad sense fall within this description, it extends to other relationships which are not equitable in nature. There is much force in Dr Nair's analysis and there are obvious parallels with the view more recently advanced by Hafeez-Baig and English in The Law of Tracing, op. cit.. 92 It should be mentioned in passing that there is disagreement as to when a fiduciary duty must be present in order to permit tracing, assuming it is necessary. Although the early English decisions indicated that it must be present prior to any misappropriation, the current view is that it is sufficient if the property passes into the possession of a person who owes the claimant a relevant fiduciary duty: Re Global Finance Group Pty Ltd (in liq) (2002) 26 WAR 385, 407 per McLure J. This is consistent with the right of a principal to trace in relation to money obtained by an agent as a bribe: Attorney-General for Hong Kong v Reid [1994] 1 AC 324: or of a claimant to trace the proceeds of a payment made by mistake, such as in Chase Manhattan Bank NA v Israel-British Bank (London) [1981] Ch D 105.

The view that a sufficient equitable proprietary interest is all that is required 93 The array of diverging views reflects the absence of any settled opinion as to whether the existence of a fiduciary relationship is necessary to the right to trace. See, in particular, the detailed discussion in Professor Smith, The Law of Tracing, op. cit., 121 - 130. There, following from In re Diplock, the learned author felt that a more accurate analysis may be that the presence of an equitable proprietary interest in the original asset is sufficient. He opined that the requirement of a fiduciary relationship was artificial and resulted in courts engaging in increasingly fictitious attempts to identify a relevant relationship in order to protect the interests of a wronged party. 94 He exemplified his observations at 129 by reference to "purchase money resulting trusts" where a party provides finance for the acquisition of land in the name of another, not intending it to be a gift. In such circumstances, the provider of finance is entitled to the benefit of a resulting trust in the land as a consequence of the ability to trace the funds provided, though there was no fiduciary duty prior to the payment. The same can be said of the ability of a trustee-in-bankruptcy to trace in relation to a disposition of property that has been rescinded for fraud: Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372, 426 - 427: or of the ability to follow stolen money: Black v S Freedman and Co (although there the thief did, in fact, owe fiduciary duties): and the entitlement to trace the proceeds of the sale of stolen property: Creak v James Moore & Sons Pty Ltd (1912) 15 CLR 426. See also Re Brumm [1942] St R Qd 52. 95 As mentioned, this view was also expressed, in obiter, by Lord Millett in Foskett v McKeown where he opined that the right to trace is derived from the property right of the original owner rather than being dependent upon equitable duties or obligations attaching to it and imposed upon the person in possession of the property. This was enthusiastically adopted by Einstein J in Commonwealth Bank of Australia v Saleh [2007] NSWSC 903 at [29] where his Honour held: There is a view that, in equity, tracing can only be obtained where some pre-existing fiduciary relationship can be shown. But the better view must now be that tracing protects rights of property, rather than enforcing fiduciary obligations. That view is supported by the House of Lords decision in Foskett v McKeown [2000] 3 All ER 97 in which Lord Millet at 124, in particular, stressed that tracing was a process intended to vindicate rights or property rather than to prevent unjust enrichment, even though it may result in that effect. 96 In this competition of theories, this proprietary interest based approach accords dominance to ownership rights and is founded on the proposition that tracing is merely attendant to the rights, or one of the rights, which a party acquires when they obtain an interest in property. It enables the holder of the interest to vindicate it. Such a view is detectable in the discussion in Ford and Lee: The Law of Trusts (Thomson Reuters, 2022, online edition) [17.4010] where it is said: In equity theory a plaintiff's proprietary claim to a traceable asset is seen as a response to, and a vindication of, the plaintiff's proprietary right in the original asset: Foskett v McKeown [2001] 1 AC 102; [2000] 2 WLR 1299; [2000] UKHL 29; Conlan v Registrar of Titles (2001) 24 WAR 299; [2001] WASC 201 per Owen J at 338. 97 A similar view is taken by Professor Denis SK Ong in Ong on Tracing (Federation Press, 2019) 106, where after discussing in In re Diplock, the learned author said: This pronouncement of the English Court of Appeal in Diplock makes it pellucidly clear that "a continuing right of property recognised in equity" forms the essential foundation of equitable tracing, and that the apparent insistence that the tracing claimant is, additionally, required to demonstrate that the property sought to be traced was originally held by a fiduciary to the tracing claimant, is an inept attempt to describe what is, in essence, the tracing claimant's continuing equitable right in property. 98 Doctrinal support for this approach is provided by Professors Ross Grantham and Charles Rickett in 'Tracing and Property Rights' (2000) 63 Modern Law Review 905 where they explained both how the persistence of the original property rights supported the entitlement to trace and the inadequacy of unjust enrichment as the underpinning rationale of that right. The authors observed (at 910): Once it is recognised that, in cases where the plaintiff retains legal or equitable property rights in the original asset even after the transfer of possession to the defendant, those persisting property rights are alone the (and, indeed, are the only) basis for recovery, then it follows that the most likely event to which the creation of rights in the traceable product are a response is also the property rights held in the original asset. This is most obviously so where the claim is in respect of equitable property rights. As Foskett v McKeown illustrates, where the plaintiff's claim is one to vindicate his property rights in the asset, the law's response is simply to declare that the plaintiff's rights in the original asset are now exigible against the traceable product. 99 They added (at 911): It should not be surprising that the property rights in the traceable product arise as a response to the plaintiff's rights in the original asset. Indeed, it would be more surprising if they did not. Property rights are a significant matter in the common law and represent one of the fundamental building blocks of the Anglo-American legal tradition. 100 To the above it may be added that it is well accepted that a right to trace attaches to other equitable interests which are not derivative upon a fiduciary duty. In the latter part of these reasons, RnD's alternative claim based upon its equitable security interest is discussed. It is acknowledged that the holder of an equitable charge is entitled to trace their security interest in property into the hands of third parties where it has been misapplied. The cases cited support the theory that it is the equitable proprietary interest or property right, as opposed to the existence of a concomitant fiduciary duty, which underpins the entitlement to trace. 101 The approach based on the existence of a sufficient equitable property interest as the foundation for tracing is also not without difficulties. Where in equity a party rescinds a contract in equity for fraud, the rescinding party is retrospectively vested with their pre-contractual beneficial title in any property transferred under it, and is entitled to trace into any proceeds of the sale: Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372, 426 - 427; Shalson v Russo [2005] Ch 281, 321 [122]. In such situations the claimant does not have any initial beneficial interest in the property, having intended to transfer all title to the other contracting party. However, this exception might be explained on the basis that "fraud unravels everything", and the initial transfer of title can be regarded as never having occurred. 102 Similarly, it has been held that the entitlement to invoke tracing applies to claimed rights of beneficiaries of discretionary trusts even though they had held no beneficial interest in the trust property prior to a relevant appointment: Elliot v Secretary, Department of Education, Employment & Workplace Relations (2008) 249 ALR 182, 193 [39]; Orb ARL v Ruhan [2015] EWHC 262 (Comm) [110]. This again arises in relation to legatees of an un-administered estate: Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694 (PC). In the latter case the Judicial Committee considered the nature of interests which potential legatees had in an un-administered estate and held that, although they had no equitable interest in any particular asset of the estate, they were entitled to utilise tracing to recover assets which had been wrongly disposed of from the estate. In that respect it was said: The basis of such proceedings is that they are taken on behalf of the estate and, if they are successful, they can only result in the lost property being restored to the estate for use in the due course of administration. Thus, while they assert the beneficiary's right of remedy, they assert the estate's right of property, not the property right of creditor or legatee; indeed, the usual situation in which such an action has to be launched is that in which the executor himself, the proper guardian of the estate, is in default, and thus his rights have to be put in motion by some other person on behalf of the estate. 103 It may be that the preferable analysis of the right of beneficiaries of discretionary trusts to trace is similar in that the fluidity of equitable procedure enables them to bring the proceedings in the name of the trustee for the benefit of the trust and it is the trustee's interest in the assets which enlivens the right to trace: Hafeez-Baig and English, The Law of Tracing, op. cit., 122 [5.18].

A sufficient equitable property right founds the right to trace 104 The foregoing reflects the current convulsions concerning the identification of the essence of the right to trace, but also reveals a broadening of the scope of that right. That evolution is, however, far from uniform and a coherent taxonomical assessment of the existing authorities remains somewhat elusive. 105 On one view, the position in the United Kingdom is that the claimant must have had the benefit of being owed fiduciary duties of a nature which include a single-minded duty of loyalty owed to them at the time of the unauthorised disposition of their property: In re Diplock and Agip (Africa) Ltd v Jackson. That is disputed by Professor Smith in The Law of Tracing, op. cit., at 341 where he argues that the existence of a fiduciary relationship is not a precondition and that fiduciary relationships exist from which no beneficial interests might arise. He also posits (at 342) that even the presence of a fiduciary relationship in relation to an asset is not necessary and all that one might derive from In re Diplock and Agip (Africa) Ltd v Jackson, is that one must have held some equitable proprietary rights in the original asset. However, if an equitable proprietary right or interest is present, it will usually follow that the party with legal title or possession is subject to a fiduciary or fiduciary like relationship. That is not to say that such a duty must exist prior to any wrongful disposition of the assets, and it may arise at some later point in time. At present, there is contrary authority in the United Kingdom. 106 The received position in Australia is somewhat different. As Hafeez-Baig and English observe in Chapter 5 of The Law of Tracing, op. cit., Australian courts have not required the presence of a fiduciary obligation involving a duty of single-minded loyalty as would exist in the trustee / beneficiary relationship. Rather, the right to trace will also arise where a party has control or stewardship of another's assets in circumstances where they are subject to quasi-trustee obligations to the owner in relation to the manner in which they might deal with the assets. There is no need for a trustee / beneficiary relationship or one having the obligations of absolute loyalty. 107 In Woodson (Sales) Pty Ltd v Woodson (Aust) Pty Ltd (1996) 7 BPR 14,685, 14706 - 14707, Santow J rejected the need for a pre-existing fiduciary duty. He held that in Australia, courts had a power to impose a remedial constructive trust in a wider range of cases than did the courts of the United Kingdom and once such a trust was imposed a right to trace would arise. In his review of the English authorities he especially noted the observations of Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 2 WLR 802 to the effect that there was no necessity to contrive a fiduciary relationship to permit tracing, and concluded that was the position in Australia which is unbound by the decision in In re Diplock. His Honour relied also on the views which he had earlier expressed in Opus Productions Pty Ltd v Popwing Pty Ltd (unreported) Supreme Court of New South Wales, Santow J, 28 February, 1995, though those comments were made in relation to the imposition of remedial constructive trusts in response to the occurrence of unconscionable conduct. He expressed similar views in Hurt v Freeman [2002] NSWSC 264 [223] where he relied on the observations of Deane J in Muschinski v Dodds (1986) 160 CLR 583, 616 - 617 that relief by way of the imposition of a constructive trust is not confined to cases involving a pre-existing fiduciary relationship. These cases might belong to a category of case which is different from those where property originally owned by a claimant has been the subject of an unauthorised disposition by a person who had control over it. Nevertheless, they have a broad consistency with Einstein J's observation in Commonwealth Bank of Australia v Saleh that a pre-existing fiduciary relationship is not a prerequisite to the right to trace. 108 To a degree, the relief consequent upon application of the tracing rules suggests that it is the existence of an equitable right of property (which includes an equitable proprietary interest) rather than any fiduciary duty which is necessary for the right to trace. The nature of the tracing rules was considered in great detail by Allsop P in Heperu Pty Ltd v Belle at 251 - 269 [87] - [174]. There is no need to repeat his Honour's analysis at this point and it is sufficient to identify the following conclusions which can be drawn from his reasons. First, that the tracing rules or "links" are concerned with the identification of a continuing interest in property or its proceeds and, where that is no longer identifiable, the application of the tracing rules ceases. Secondly, the rules are not concerned with the rectification of a wrong but with identifying what remains of the property of which the claimant was deprived or of its value. That conclusion is supported by the absence of any personal claim against a volunteer recipient of property. Thirdly, the remedy of a claimant owner of property to an equitable charge on the property in the hands of the third person is not regarded as a security interest for the amount received. It is a proprietary interest equivalent to the proportion to which the claimant's property or the proceeds thereof was used to acquire the property now held by the third party. On one view, that which is traced is not merely the monetary value of the claimant's interest but the proprietary right or interest which attaches to any new property acquired in the same proportion as it bears to the cost of that property's acquisition: see the discussion in Professor Ong, Ong on Tracing, op. cit., 58. 109 Whilst no clear picture emerges of the underlying foundation of the right to trace, there are, of course, certain categories where courts have recognised the entitlement of persons to invoke the tracing process to recover the proceeds of misappropriated property. They include: (a) beneficiaries under fixed trusts; (b) persons who derive a proprietary interest in property consequent upon the breach of a fiduciary duty; (c) beneficiaries of discretionary trusts; (d) legatees under unadministered estates; (e) the owners of stolen money or property; (f) the holders of equitable security interests; (g) the beneficiaries of a purchase money resulting trust; (h) a trustee-in-bankruptcy who has avoided a fraudulent disposition of property; and (i) a party who seeks to recover the proceeds of property transferred under a contract which has been set aside for fraud. 110 This list is not exhaustive, but the categories of cases where tracing has been permitted tend to negate any requirement for an initial equitable proprietary interest derived from a fiduciary duty. The suggested rationales for such a precondition do not justify the exclusion of the right to trace in respect of other equitable interests which are not so derived. Though it must, at once, be acknowledged that not all of the authorities in this area are necessarily sound, the foregoing indicates that it is the nature of the equitable interest as being one relating to property which is the genesis of the right to invoke tracing. 111 This does not deny the importance of fiduciary duties to the tracing process. Whilst they might not be a requirement for tracing in equity, their almost ubiquitous presence in cases where that is sought to be invoked cannot be doubted. Though, this may well be because their existence has, in part, been the occasion for the need to engage the process. Where a fiduciary duty exists with respect to property, there will usually be a bifurcation of interests in or rights with respect to that property. It will also often result in the fiduciary having possession, or at least, control over it. All of which provides the opportunity for the effective disposition of title to it to a third party, even though unauthorised by the person to whom the duty is owed. In this sense, it is unsurprising that a need to invoke tracing in equity arises in relation to the conduct of errant trustees, executors or agents. Thus, it may simply be that the presence of an anterior fiduciary relationship is a regular cause of the need to invoke tracing principles, rather than a precondition for them. 112 The identification of the foundation of tracing as being located in the nature of equitable proprietary rights is merely the analytical consequence of the existing law, rather than any departure from it. It is also consistent with the right to trace at common law having a similar structure to the cognate right in equity despite the absence of any fiduciary duty. 113 The precise nature of the equitable interest in or with respect to property which has as one of its concomitant rights an entitlement to invoke tracing in equity need not be finally determined. For present purposes the authorities indicate that it includes, at least, an interest as an equitable chargee or equitable mortgagee. It is not necessary to decide whether lesser equitable interests such as an interest in the nature of equitable lien would attract the same entitlement. Whilst the right might attach to what are commonly referred to as "mere equities": Latec Investments Ltd v Hotel Terrigal Pty Ltd (1956) 113 CLR 256: it may not do so in relation to "personal equities". Though, as a matter of principle, where an interest in respect of property includes a continuing right to enjoy to a benefit in respect of it, there is no self-evident reason why the right to trace in equity should not be open. In this, the concept of benefit is used in a wide sense which would include the interests of beneficiaries under trusts which have not yet vested. At the very least, where the equitable right involves a power of disposal, being to sell either directly or through an order of the court, and an entitlement to the proceeds, the strength of the interest necessarily justifies recourse to tracing to assist in its enforcement despite any unauthorised disposition.

RnD's interest was sufficient to engage the equitable tracing process 114 Here, RnD held an equitable interest in the funds in ATG's account although by way of a charge only. It was a proprietary right or right in respect of property capable of being enforced by a court in equity as a result of which RnD would be entitled to the benefit of the property. As such, it had the necessary characteristics to attract a right in equity to trace the funds were they to be misapplied. The equitable right, being an equitable charge, arose from the terms of the General Security Deed and their operation upon ATG's default under the First Facility. There was no need for RnD to rely on the separate existence of a fiduciary relationship between it and ATG or it and any other party. The charge arising under the deed was a proprietary right which entitled RnD to realise the property subject to it, and was equitable in nature permitting RnD to draw upon equitable tracing rules. The conclusion that the holder of an equitable charge has a sufficient proprietary interest in the secured property to enable them to have resort to tracing is supported by the consideration below of RnD's secondary claim. 115 It follows that RnD is entitled to a declaration that the Goldus shares are held by Roncane subject to its security interest. The precise nature of that declaration is considered in the following section.

RnD's claim as the holder of a security to trace the equitable charge 116 RnD advanced a secondary claim to trace into the Goldus shares in reliance upon its security interest in the funds in the ATG account. It claimed that it was an equitable chargee which entitled it to invoke the tracing rules to identify that the funds which were misappropriated were used to acquire the Goldus shares. 117 The nature of a chargee's interest in the assets covered by its charge was considered by the Western Australian Court of Appeal (Murphy and Mitchell JJA and Allanson J) in Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (2018) 53 WAR 325, 343 [49] as follows: In general terms, the essence of an equitable charge is a proprietary interest granted by way of security, without any transfer of title (outright title as opposed to an equitable interest), or possession, to the chargee. Specific property of the chargor is expressly or constructively appropriated to, or made answerable for, the payment of a debt or other obligation. The chargee is given the right to resort to that property for the purposes of having it realised and applied in or towards the payment of the debt. Thus, the equitable chargee (unlike the beneficiary of a trust) has remedies against the property itself, and not against the holder of the property. (Footnotes omitted). 118 There is substantial commentary in support of the view that a creditor's security in an asset extends to the proceeds of the unauthorised disposition of the asset by the debtor or a third party: see Professor Louise Gullifer (ed), Goode and Gullifer on Legal Problems of Credit and Security (Sweet & Maxwell, 6th ed, 2017) 44 [1-63]. In Professor Smith's The Law of Tracing, op. cit., 347 the entitlement of a secured creditor to trace into the proceeds of security which has been wrongfully dealt with by the surety, is clearly accepted. The learned author relied upon the decision in Buhr v Barclays Bank plc [2001] EWCA Civ 1223, which concerned the entitlement to the remaining proceeds of the sale of charged property over which there was a prior mortgage. After the owners had entered into a voluntary arrangement under the then current insolvency legislation, they instructed their solicitor to sell their property. Following the sale and after the mortgage was discharged, a sum of £27,500 remained in their solicitor's trust account. In the Court of Appeal, Arden LJ (with whom Tuckey LJ and Woolf CJ agreed) held that Barclays had an equitable interest to or right in the proceeds in the solicitor's trust account. Her Ladyship observed at [40] - [41]: [40] So far as principle is concerned, equity has for a long time taken the view that the mortgagee is entitled to a security interest in the fruits of the mortgaged property. Thus if (for example) a mortgagor grants security over a lease and he then surrenders the lease and takes a new lease, the mortgagee has a security interest in the new lease (Hughes v Howard (1858) 25 Beav 575). Where a mortgagor renews a lease the mortgagee obtains a security interest in the new lease without express mention in the mortgage deed (Leigh v Burnett (1885) 29 Ch D 231). Mr Norris submits that these cases are distinguishable because this case is concerned with proceeds of sale, rather than the renewal or grant of a lease. In my judgment this is not a valid distinction. In all these cases, the mortgagee is entitled to the fruits of the mortgaged property: see generally Fisher & Lightwood's Law of Mortgage, (10th edn) (1988) at pp 55 to 57. [41] … They are founded on the simple and eminently fair proposition that the mortgagee should be entitled to accretions to the mortgaged property or property received in substitution for it, as on a renewal or further grant of a lease. That principle is reflected in legislation dealing with leasehold enfranchisement (see the Leasehold Reform Act ss 8 to 13); on compulsory acquisition and compensation for blight (see for example Town and Country Planning Act 1990 ss 117(3), 162, 250); and on disclaimer in the insolvency of the mortgagor (Insolvency Act 1986, ss 181 and 320). 119 Her Ladyship concluded that if Barclays was able to establish a proprietary interest in the funds, the solicitors would hold them on a constructive trust for it. The basis of this was that the law treats a mortgagee or chargee as entitled to property which is the substitute of the mortgaged property which has been disposed of contrary to the security (at [43]). Her Ladyship (at [45]) relied upon the observations of Sir Roy Goode in Commercial Law (2nd ed) (1995) 667 - 668, where he posits that the security interest in the identifiable asset arises in accordance with the equitable principle of tracing so that the unauthorised dealing could not destroy the security. In these circumstances, a debtor who has granted security is to be equated with the position of a fiduciary for its proper observance, and the mortgagee's interest in the property is sufficient to support the right to trace. At [47] her Ladyship said: Mr Norris submits that the mortgagor does not owe a fiduciary duty to the mortgagee. In general terms this is correct. For instance the mortgagor has no general duty to act in the interests of the mortgagee. But in the specific matter of accretions to or substitution of the mortgaged property equity has undoubtedly treated the mortgagor as a fiduciary (see Re Biss [1903] 2 Ch 40). There is no difficulty in law with a person being a fiduciary towards another in respect of some aspects only of that person's duty to that other (New Zealand Netherlands Society "Oranje" Inc v Kuys [1973] 2 All ER 1222, [1973] 1 WLR 1126). I reject Mr Norris' submission that in some way an equitable charge is insufficient to give an interest in land. I agree that no change of legal or equitable ownership takes place when an equitable charge is created. Even so, the equitable chargee obtains a proprietary interest in the property (see for example Bland v Ingrams Estates Ltd and others [2001] EWCA Civ 1088, [2001] 1 WLR 1638, at p 1645G of the latter report, per Nourse LJ). This is sufficient to give the mortgagee a proprietary interest in property which represents the property originally mortgaged following completion of an unauthorised disposition by the mortgagor. 120 It is apparent that Arden LJ was aware of the then general principle that equitable tracing would arise only where a fiduciary duty existed, and her Ladyship seems to have implied that a mortgagor owed its lender a limited fiduciary duty in relation to the proceeds of any sale which was not being paid in discharge of the first mortgage, and that such an equitable interest was sufficient to support tracing. To the extent to which such a duty existed it must necessarily have been of a very limited nature and the attempt here to find such duty tends to support the observation of Professor Smith, The Law of Tracing, op. cit., that the courts are engaging in increasingly fictitious attempts to identify a relevant relationship. 121 That Barclays had a right to trace was also sought to be supported by the argument that it accorded with common sense for otherwise it would leave a significant lacuna in the law of mortgages by permitting a sale of the mortgaged property which would defeat the security. There is merit in that submission. 122 In the more recent edition of Goode and Gullifer on Legal Problems of Credit and Security, the learned authors rely upon those observations in Buhr v Barclays Bank plc to support the refortified statement as to the right of security holders to trace into substitute assets. It is said (at 50 [1-64]): The process which links the new assets (the proceeds) with the former asset is tracing. It is wrong to regard the proceeds as the original asset in a changed form, since the original asset continues to exist, and the proceeds represent the exchange value of the asset to the parties to the transaction which produces them. It follows that there is no need to show any physical correlation between the asset the claimant lost and the asset the defendant received, merely loss of value by the claimant and a receipt of value by the defendant. Accordingly an improper transfer of value by novation is just as traceable as a transfer of value by assignment. These concepts have now been endorsed by the highest authority. 123 This proposition cited Foskett v McKeown at 128 where Lord Millett had said as to the nature of the right which is traced: That will depend on a number of factors including the nature of his interest in the original asset. He will normally be able to maintain the same claim to the substituted asset as he could have maintained to the original asset. If he held only a security interest in the original asset, he cannot claim more than a security interest in its proceeds. But his claim may also be exposed to potential defences as a result of intervening transactions. 124 As to the consequence of the tracing process the learned authors said that, "the secured creditor had a security interest of the same nature as before, but in a different asset arising automatically at the moment of receipt of the proceeds by the defendant" (at 46 [1-64]). 125 The rights of a general charge holder to the proceeds of the sale of the original security were recognised in AVCO Financial Services Ltd v Commonwealth Bank of Australia (1989) 17 NSWLR 679, 682. The registered mortgagee of a Torrens title mortgage had sold the mortgaged land and paid the excess proceeds into court. They were claimed by the holder of an equitable charge and Young J held that, despite the dealing with the land by the mortgagee, the charge attached to the proceeds which had been paid into court. Similar views were expressed by Finkelstein J in Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 5) [2008] FCA 1700, where his Honour held that a second mortgagee was entitled to trace a proprietary interest to the proceeds of the sale of mortgage land which had been paid into court by the first mortgagee after the sale of the secured property (this point was not upset on appeal). See also Dick v Harper [2006] BPIR 20, 31 [41]; Bunnings Group Ltd v Asden Developments Pty Ltd [2014] 1 Qd R 493, 508 [49]; and Stephenson Nominees Pty Ltd v Official Receiver (1987) 16 FCR 536, 554 per Gummow J to the same effect. 126 The underlying nature of the entitlement of a secured creditor to trace into the proceeds of its unauthorised distribution is discussed by Dr Magda Raczynska in The Law of Tracing in Commercial Transactions (Oxford University Press, 2018), ch 6, 205 - 231, particularly as to the several possible underlying rationales for the right of a secured creditor to trace. They include the presence of a proprietary interest subject to an obligation such as in Foskett v McKeown, ratification of unauthorised transactions, unjust enrichment, and vindication of existing proprietary interests. Whilst she accepts that the actual basis of Arden LJ's reasoning in Buhr v Barclays Bank plc was probably the same as that relied upon in Foskett v McKeown, she proposes that the most current view was that it was supportable by the principles of unjust enrichment. In any case she does not contest that the holder of a charge over an asset is entitled to trace into an asset for which it was substituted by an unauthorised transaction. 127 In The Law of Tracing, op. cit., Professor Smith argues that the unauthorised substitution of property the subject of a security cannot change the creditor's secured interest into a beneficial interest. He says at 348, "If the proprietary base was in the nature of security, then the interest in traceable proceeds can only be a security interest." It follows that any tracing will be by reference to the security interest corresponding to the amount of the debt owed, rather than a share of the substitute property. This is important in relation to the relief which RnD sought.

RnD has a traceable interest 128 As it has been indicated earlier, RnD advanced a claim to trace the funds taken from the ATG account rather than funds from the "Controlled Account". Its claim was simply that its circulating security had crystallised over the funds, and its equitable security interest was sufficient to permit it to invoke the tracing process so as to assert a claim over the Goldus shares now held by Roncane. Had the primary judge perceived that such a claim had been advanced, he would have accepted that the tracing links had been established with the consequence that RnD could assert its security claim over the shares. 129 His Honour's reasons in this respect are consistent with the authorities concerning a secured creditor's entitlement to trace the property over which it holds its equitable security interest into any proceeds and substitute property. As RnD was able to identify, contrary to the primary judge's conclusion, that it had advanced such a case, the appeal should be allowed on this basis as well. RnD is entitled to trace its security interest into the Goldus shares.

The scope of RnD's claim over the Goldus shares 130 The remaining issue is as to the extent of RnD's proprietary interest in the Goldus shares held by Roncane. As discussed above, its interest or right which attaches to the shares is the same as that which inhered in the money in the ATG account, that is, a security interest as created by the General Security Deed. That entitled it to a fixed charge over the chose in action in the ATG account and the right to realise it for the purpose of satisfying the indebtedness under the facilities. It follows that it has the same security interest in the Goldus shares: Foskett v McKeown at 128 per Lord Millett. So much was accepted by Mr Cook for RnD in the course of this hearing. 131 In the first instance it was submitted that the Court should declare a constructive trust over the Goldus shares to be held for the benefit of RnD so that it may enforce its security interest, rather than Roncane's title being held subject to RnD's security interest. Just how this result could be justified was not fully explained. Contrary to the established authority, it would have the effect of converting RnD's security interest into a beneficial interest in the title to the shares. There is no warrant for enlarging its interest in that way. 132 In the alternative it was submitted that a declaration should be made to the effect that Roncane holds the shares in Goldus subject to RnD's security interest arising under the General Security Deed. That is the appropriate remedy. 133 A subsidiary question arose as to the amount which should be secured over the shares. Although the General Security Deed is an "all monies" security and secured all of ATG's indebtedness to RnD, at the trial the only amount in respect of which default was shown was the sum of $320,000. That was the extent of RnD's interest in the funds in ATG's account which was misappropriated. Further, as the learned primary judge concluded (PJ [300]), although RnD was entitled to be paid fees and interest under the First Facility Agreement, it had not established what those amounts were. His Honour concluded that the extent of the default was, therefore, $320,000. In the circumstances RnD is entitled to a limited declaration, as at the date of the first instance judgment, that the Goldus shares held by Roncane are subject to its security interest in an amount of $320,000, but that does not mean that the security is limited to that amount. 134 No question arose as to whatever other rights RnD might have had as a result of its security, if any.

Conclusions 135 It follows that the appeal should be allowed. 136 The declaration should be as follows: It is declared that the shares in Goldus Pty Ltd held by Roncane Pty Ltd are subject to the security interest of RnD Funding Pty Ltd, granted by a deed in writing called "General Security Deed" which is dated 22 December 2017, for the repayment to RnD Funding Pty Ltd of the sum of $320,000 (Three Hundred and Twenty Thousand Dollars).

Costs 137 RnD also sought an order for costs in respect of the appeal. Although there was no express relief claimed in the Notice of Appeal in respect of costs, the respondent, Roncane, has had sufficient notice of the appellant's intention to seek such an order, it having been raised in the written submissions which were filed and served well before the hearing. There is no reason why the successful appellant should be denied its entitlement to such an order. The respondent is therefore ordered to pay the appellant's costs of the appeal, to be taxed. 138 RnD sought a further order that the primary judge's costs order be set aside and an alternative order be made. As the degree to which the issues on which the appellant has succeeded were the cause of expense in the matter before the learned primary judge is not known, the preferable course is to allow the parties to make submissions as to the appropriate order for costs if no agreement can be reached. I certify that the preceding one hundred and thirty-seven (137) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.