Chancery law

Tracing claimsFoskett v Mckeown, House of Lords, 18 May 2000, The Times, 24 May 2000The House of Lords had to decide which of two innocent parties should benefit from the activities of a fraudster who misused the moneys of some purchasers of land.

In breach of trust, the fraudster had used 20,440 of the purchasers' money to pay the fourth and fifth premiums on a pre-existing life insurance policy.

The fraudster committed suicide and his insurers paid more than 1,000,000 to the surviving trustees of the policy.The purchasers claimed that since they had paid at least 40% of the premiums they were entitled to 40% of the policy moneys - more than 400,000.

The fraudster's children contended that the purchasers were entitled to no more than the return of the sum misappropriated to pay the premiums - only 20,440 plus interest.An unusual feature of this case was that the payment of the fourth and fifth premiums did not increase the value of the life insurance policy and were not required to keep the policy active at the time of the fraudster's death.

However, if the fraudster had remained alive for a few more years, those additional premiums would have had the valuable effect of keeping the policy in force.

A majority of the Court of Appeal found that the payment of a premium on someone else's insurance was more akin to an improvement of land (which would only entitle a claimant to a lien on the improved property) than to the mixing of separate trust moneys in one account (which would give a pro rata share).

In contrast, a majority of the House of Lords held that the analogy with mixed funds was correct and the purchasers were entitled to recover 40% of the value of the insurance.It is only with hindsight that it can be seen that the fourth and fifth premiums did not add any value, and that the ownership of the policy must be ascertainable at every moment from inception to maturity and cannot be made to await events.

Therefore, since the purchasers contributed in part towards the acquisition of the new asset, it was not necessary to show that there was any resultant increase in the value of the asset for them to hold a pro rata share.

Statutory compensationSteed v Home Office, House of Lords, 18 May 2000, unreportedThe House of Lords rarely deals with cases worth less than the small claims limit.

Here, the claimant, who was a solicitor, in compliance with the Firearms (Amendment) Act 1997, surrendered firearms and ammunition to the police.

Section 15 of the Act provides for a compensation scheme.

Three months after the surrender, the claimant had not received his compensation and issued a County Court summons for 3,298.

The Home Office attempted to strike out the claim on the grounds that the claimant ought to seek judicial review of the failure to process his application for compensation rather than issue a private law summons for damages.

The compensation scheme did not provide for interest or set a deadline for payment.

By the time the Lords heard the case, the Home Office had paid the claim except for the interest.

The House of Lords unanimously held that the compensation claim should be processed within a reasonable time, that the case was an exception to the general rule found in O'Reilly v Mackman (1983) 2 AC 237, that a person seeking to establish that a public authority's decision infringed his rights should proceed by application for judicial review not by ordinary action, and that the claimant was entitled to interest.

by Dov Ohrenstein, 3 New Square, London