Last week, I listened to Prof Ben McFarlane’s engaging talk on equitable proprietary rights at UCL law faculty.

In so far as I can understand him, the debate seems to be between two views:-

View 1

  • There is no such thing as “equitable proprietary rights” strict speaking.
  • Instead, all cases where such rights are put forward should be understood under the paradigmatic case of trust.
  • A trustee (T) holds the legal title of the property (P) for the benefit of the beneficiary (B). The rights of B over P are not property rights as such but right against a right held by another (whether T or some other party).

View 2

  • There is such a thing as equitable proprietary rights because

    (a) if P is held on trust by T for B, it is shielded from creditors on T’s insolvency.
    (b) subsequent holders of the legal title to P are bound by B’s beneficial interest, unless it is a bona fide purchaser for value.

    Both (a) and (b) are indicia that the rights B has is a proprietary right good against third parties, as opposed to rights against whoever holds the legal title to the property.

McFarlane favours (and continues to favour) View 1, and offers a number of novel defences in the lecture.

As opposed to engage with that debate (of which I know little), I will attempt to walk through the implications of View 1 from a typical scenario that often arises.

The victim is a subject of online scam, and transferred funds to a fraudster, on the fraudulent promise that the funds will be used to make some imaginary investments.

After discovering the scam and reporting the matter to the Police, the victim instructs lawyers to commence civil recovery proceedings.

Typically, counsel in this scenario will apply for both a Mareva injunction and a proprietary injunction. While the case for a Mareva injunction would often be made out in any event (especially if the defendant does not appear), the proprietary injunction has additional benefits in that (1) there is no need to show risk of dissipation, and (2) the starting point is that the defendant is not allowed to draw from the frozen funds.

An intuitive explanation of what is happening is likely to be something akin to View 2. Someone stole the victim’s money; victim goes to the lawyers; the lawyers assist the victim to assert her proprietary right by obtaining a proprietary injunction.

How would someone subscribing to View 1 analyse the situation? Perhaps along the following lines:-

  • After the transfer, the legal title to the funds (technically a debt owed by the bank to the account-holder) is transferred from the victim to the fraudster.

  • Because the transfer was made due to the fraudster’s fraud, a Westdeutsche Landesbank “stolen bag of coins” constructive/resulting trust arose, so that the victim has a right to demand the fraudster to return the funds.

Is this View 1 analysis convincing on an intuitive level?

It may be said that the View 1 analysis waters down the basic idea that the victim is seeking a direct return of something that belongs to her, as opposed to seeking general damages. Hence a proprietary as opposed to Mareva injunction.

On the other hand, it does seem obvious that, even supposing the victim obtained the injunction, whatever rights she has is significantly weaker than the rights she had over money in her own account, which (even though in law a debt) comes much closer to being her property in an intuitive sense.

After all, the injunction only binds the defendant fraudster, and only binds any third party with notice of the injunction.

In practice, for online scam cases with banks, the bank will have notice and be bound, on pain of contempt of court.

(But note the cases that hold that even if a bank carelessly permitted withdrawal, it is not liable to the victim in negligence because of lack of a duty of care. Thus in practice all depends on bank’s co-operation.)

If instead the defendant fraudster stole some cash or chattel, which is not held by a third party, then even a proprietary injunction gives little comfort. There is no practical way of stopping a defendant (which may be an absent defendant to start with) from simply absconding.

Thus, it might be said that by emphasising there is no such thing as “equitable proprietary right”, the View 1 analysis is painting a more nuanced and accurate picture than the initial “equitable proprietary right” analysis.