In Intext Coatings Ltd (In Liquidation) v Deo, the High Court was again asked to consider the limits of the equitable remedy of tracing (previously considered here). In particular, the Court was asked to consider the circumstances in which 'backward tracing' (the tracing of trust funds used to repay a debt into the asset over which that debt arose) is available.
In this instance, the director of the liquidated company had used company funds to repay the mortgage over her home.
The Court held that, while backward tracing was available in some circumstances, there needs to be a close causal and transactional relationship between the incurring of the debt and the use of trust funds to discharge the debt. In the circumstances before it, the Court was satisfied that there was not a sufficient link. Ultimately, the Court found instead that the liquidated company was entitled to be subrogated into the shoes of the mortgagee for the amount of company funds used to repay the loan.
It should be noted that the conclusion in respect of backward tracing is at odds with several previous High Court decisions and further clarity may arise from a decision from the appellate courts.
See Court decision here.