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The difficulty is raised, I believe, by the possible argument that both the original owner and the purchaser are entitled to trace from their original asset into its substitutes. In this respect, my view is that reference to Lord BW's constructive trust analysis is a red herring of sorts. I have always read Lord BW to mean that a constructive trust is imposed so as to allow equity's more generous rules of tracing to apply. With Foskett v McKeown, such an artificial analysis may be unnecessary. After all, what is the thief constructive trustee of? He admittedly has legal title given that title is relative in the common law, but the original owner already has superior title, so why is there a need to raise a trust except to engage equity's rules of tracing? In any event, there may not be any mixing of the property.

So if T steals O's car and sells it to B, thereafter using the money to purchase shares that rise in value, who is entitled to claim the shares after a successful tracing exercise? O has a proprietary base in his car which he could trace into the money and therefore the shares. B, on the other hand, has a sufficient proprietary base (right to revest title for deceit) to trace from the money into the shares. It is this conundrum that needs resolving and I concede that I am as much at a loss as Mr Penner as to who should be favoured in the ultimate analysis. Though I believe the problem exists whether or not there is a constructive trust imposed in favour of O.

If the ability to recover the profits were studied from an obligations perspective, it would appear that O gets to reap the profit because he can "waive the tort" whereas B cannot (I can't recall the name of the case that decides that deceit cannot be waived offhand).

Kelvin Low
Assistant Professor
13 Law Link
Faculty of Law
National University of Singapore
Singapore 117590
Tel: 68744192
Fax: 67790979

-----Original Message-----
From: Enrichment - Restitution & Unjust Enrichment Legal Issues on behalf of John Swan
Sent: Thu 01/04/2004 23:45
Subject: [RDG:]

Some answers to James Penner’s questions under the common law and ignoring some special rules and the possible application of some statutes are:

• If the “thief” is a thief and stole the goods, whether the owner has a right or not against the thief, the owner can recover the value of the goods from the purchaser in conversion. The owner can pursue the goods into the hands of anyone who acts inconsistently with the owner’s title. The claims against art galleries for paintings, etc., looted after WW II are of this type. Note also that no one in the chain of wrongful holders and certainly not the last is likely to be protected by the Limitations Act.

• The right of the owner to recover from the thief and from the wrongful holder is, presumably, subject to the limit imposed by the Privy Council in Mahesan: the owner cannot recover more than once. The ultimate holder, on being made liable to the owner, can sue his or her seller, and so on back up the line. The person who bought from the thief can sue him or her. Such claims could be brought under the Sale of Goods Act.

• The old common law right to “waive the tort” and to claim the proceeds of the tort from the tortfeasor may also give the owner a claim, but that claim would not be based on a trust. I would have thought, without the benefit of any review of the cases, that the real question is whether the proceeds received by the thief can be traced.

• If the goods are obtained by fraud, the “purchaser’s” title is voidable. In this situation, the goods can be obtained from the “purchaser” on the rescission of the contract. The “purchaser” is, of course, liable under the contract or for damages for deceit. Since the “purchaser’s” title is voidable and not void, a bona fide purchaser for value from that person will now get good title. See, e.g., Lewis v. Avery.

I am not sure how this analysis plugs into the points that concerned Mr. Penner, but I think that the distinction between theft and fraud has to be kept in mind.