Dummy Asset Tracing

Abstract

Tracing is widely understood to be the process of demonstrating that two rights are connected through an exchange, such that a claim to the right given up can be transmitted to the right acquired. This has been termed “exchange-product tracing”, and – though its core case is the unauthorised substitution of a trust right – it is also thought that a bank transfer exemplifies a rights-exchange. I argue here that this is a mistake: a bank transfer does not involve a substitution of the kind envisaged by exchange product tracing. Rather, the process that we have called “tracing money” through a bank transfer involves two steps: (i) converting bank money, by artifice, into an asset independent of the underlying account; (ii) following that asset from one location to another. Together, I call these steps “dummy asset tracing”.

In this article, I show that the twin steps of dummy asset tracing have led us to increase the ambit of third party liability at law and in equity: by simulating cash transfers, innocent bank payees have been made liable to claimants with whom they did not transact, and of whom they were wholly unaware. I argue that the normative foundations for dummy asset tracing are weak, and that there is authority and appetite for an approach that focuses more closely upon the defendant’s proximity to the relevant injustice: if a defendant is liable for sums paid to her by someone other than the claimant, it is either because she actuated or participated in a breach of duty owed to the claimant, or because she is the counterparty to a defective transaction effected by the claimant’s agent.