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There is much of interest in Rimer J's decision in Shalson v Russo [2003] EWHC 1637 (Ch), including:

(1) Foskett cannot be treated as authority for abolishing the distinction between the common law and equitable tracing rules [103]-[104] (Rimer J's finding on this point is obiter since he goes on to hold that the claimant has an equitable proprietary interest and so is entitled to rely on the equitable tracing rules anyway);

(2) money which a claimant transfers to a defendant under a contract induced by fraudulent misrepresentation does not immediately belong to the claimant in equity under a constructive or resulting trust because the contract is void and not voidable [106] ff;

(3) Lord B-W's comments re the stolen bag of coins in Westdeutsche doubted [109]-[117];

(4) Bingham J's decision in Neste Oy doubted [118];

(5) effect of rescission is to revest property in claimant's hands, providing third party rights do not intervene [121]-[127] (spinning Lord Mustill's comments in Re Goldcorp at [1995] 1 AC 102);

(6) revesting of equitable title following rescission gives claimant right to invoke equitable tracing rules [127];

(7) following Lord Millett in Twinsectra, it takes more than an agreement that money will be used in a particular way for the courts to discover an intention to create a Quistclose trust [128]-[129] (Rimer J's discussion of this point at [129], incidentally, supports the view that a Quistclose trust is an express trust and not a resulting trust - a point on which their Lordships are unclear in Twinsectra);

(8) a proprietary claim will not lie against a bank which innocently receives money from its customer who has fraudulently acquired the money from the claimant [135] (this finding is inconsistent with various cases which say that a bank can be personally liable to a claim for knowing receipt in these circumstances because it receives the money beneficially);

(9) but a proprietary claim will lie against a bank which receives such money from a customer in bad faith [135];

(10) when tracing through payments in and out of a defendant's bank account, a claimant cannot ask the court to 'consolidate' all of the defendant's accounts with the bank, in order to escape the consequences of his money having been paid into an account that was overdrawn [137]-[139] (following Box v Barclays Bank);

(11) backwards tracing approved in principle, but not available in respect of most of the money in issue [141] -[142] (preferring Dillon LJ to Leggatt LJ in Bishopsgate; Foskett (CA) apparently not cited on this point);

(12) considers 'the example of a fraudster with £50 in his account, who then steals £25 from each of A and B and pays it into his account, so increasing the balance to £100. He uses £50 of it to buy a car, so reducing the balance to £50. He then steals £25 from C and pays that into the account, so increasing it to £75, and then dissipates the lot. On Mr Trace's argument, each of A, B and C can trace his money into the car. On Mr Smith's argument, only A and B can.' ...

... and concludes that 'I agree with Mr Smith. I can see no basis why C can or should be entitled to trace his money into the car, because by no rational process can his money be regarded as having paid for it. ' [150]

There are also some more detailed findings about the ins and outs of the claimant's attempts to trace which defy easy summary!

Charles