Limits of backwards tracing—High Court tackles fundamental principles of tracing through a debt (SFO v Hotel Portfolio II UK Ltd)

Article summary

Dispute Resolution analysis: Giving judgment on an application for strike out/summary judgment, Mr Justice Foxton grappled with two issues which, while often fundamental to tracing claims, have not previously received substantial judicial consideration: (1) the limits of tracing into the payment of a debt (ie ‘backwards tracing’); and (2) ‘election’ in the context of alternative tracing claims. In a judgment which is essential reading for any party tasked with identifying trust assets and litigating tracing claims, the court held that (1) backwards tracing into assets acquired prior to the misuse of trust assets is not permitted, save in certain narrow exceptions; and (2) a beneficiary seeking to pursue a claim for misappropriated funds can elect which course to follow at the time that a judgment on issues of tracing trust assets is given (rather than being required to do so earlier, for example when asserting its claim to one particular asset)....