A principal applied in certain circumstances at common law and in equity allowing the claimant of certain property, in order to enforce his or her proprietary right to ‘trace’ that property where it has been mixed with another’s property or transformed or passed to a third party.
“Tracing is thus neither a claim nor a remedy. It is merely a process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.” – Foskett v McKeown  UKHL 29
Some rules apply to tracing in trust accounts:
- Lowest intermediate balance/nil balance rule – the trust cannot claim more than the lowest intermediate balance available in the trustee account in the period between the mixing of funds and the bringing of the claim. If the account has been overdrawn, the plaintiff cannot recover a proprietary remedy (nil balance rule).
- First in, first our principle vs. sharing rateably – the trustee will always be taken to have spent their own money first where money has been mixed. The principle of first in, first out has been overturned, and where there are multiple beneficiaries, they will now ‘share rateably’ in the available funds.
- Successful investment – where a beneficiary’s funds have been successfully, but wrongly, invested, they will be entitled to the proportion of the return which can be linked to the original property, so as to prevent the defendant from profiting
There are several exceptions or defences to the operation of tracing, including where the assets have been dissipated, a debt or loan in question is secured, where the traced assets have been acquired by a bona fide purchaser for value without notice, or where there has been a change in position.