The Unbearable Lightness of Property - alastairhudson.com

Westdeutsche Landesbank v. Islington 39 the bank lost its right to trace the deep
discount amount transferred to the local authority because the account into which that
money had been paid had run overdrawn and it was impossible to identify any
substitute property into which the tracing claim could then pass. This is the loss of
right to trace rule in the banking context: when money passes into an account and that
account is run overdrawn before the commencement of the action, the claimant loses
its right to trace into that bank account because the money has disappeared. 40
The rationale for this rule is that money in a bank account is analogous to tangible
property. An overdrawn account means that that specific property has ceased to exist
in the same way that a table which is burnt to cinders is said to cease to exist as a
table. What the rule does not account for is the fact that the property at issue is not
tangible property at all, but rather that it is an amount of value represented by the bank
account debt. English law understands payment flows as being made up of movements
of tangible property which informs the treatment of restitution of payments, taking
security rights over payment flows, and tracing payments generally in financial
markets. The courts have tended to see financial transactions not as being made up of
choses in action in this way but rather as being mere conduits for transfers of tangible
property in the form of money.
Moving beyond “tangible money”, and into “money as value”
The argument that money in these contexts should be considered to be value and not
property has the strength that it becomes easier to establish tracing claims for value in
cases of money laundering. There remains the further question as to whether or not the
rights ought to be proprietary or merely personal. It is suggested that the distinction in
relation to financial transactions is typically a meaningless one. Financial transactions
are concerned with the allocation of value to accounts and not with the establishment
of rights in any particular property because the property does not exist in any
meaningful sense in any event. A bank is not concerned to recover the “specific £2.5
million” which was transferred, rather they want to recover value equal to “£2.5
million plus compound interest”. To talk in language born out of the law relating to
tangible property is meaningless here. 41
39 [1996] A.C. 669.
40 Bishopsgate v. Homan [1995] 1 WLR 31, Roscoe v. Winder [1915] 1 Ch. 62.
41 In relation to insolvency, the “property” which the claimant is seeking to recover is still an amount of
value equal to the size of its claim. The question is therefore not one of recovery of property in truth, it
is in fact a question for the policy of insolvency law: in what circumstances should one creditor be
entitled to jump the queue in the event of insolvency The answer must lie in the form of the contract
creating the transaction. At this level, it is a question of risk allocation. If the contract has segregated
assets and taken some proprietary right over them, insolvency law policy has long held that that
claimant should receive preferential treatment to other creditors. The question is, in truth then, whether
or not that creditor has agreed to enter into the transaction only on the basis that it would protected in
the event of the insolvency of its counterparty. In relation to money claims, the loss of right to trace
rule terminates those proprietary rights at the moment when the money leaves the account and is
dissipated.
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