• In the case of Chase Manhattan Bank v Israel British Bank [1981] Ch. 105, it was held that a person who paid another’s money under a mistake of fact is entitled to trace and recover that mistaken payment since he retains an equitable property in it, and the payee is under a fiduciary duty to respect that proprietary interest.

Facts of the Case

  • In July 1974 C paid $2m by mistake to a second bank in New York for account of D, which carried on business in London.
  • In August, D petitioned the English Court for a winding up order. In September, it filed for bankruptcy in New York. The winding up order was obtained in December.
  • In August 1976, C brought action against D seeking to trace and recover in equity the sum paid by mistake.
  • D questioned the right to prove pending the tracing claim but in April 1977 D was directed to admit C’s proof and held that C had a claim against D for the money had and received, but was not precluded from asserting a proprietary claim over specific assets if they could be traced.
  • D was at this time insolvent, and C would not be able to recover the whole of its loss by means only of dividends in the winding up.


  • Was C entitled in equity to trace the mistaken payment and to recover what now properly represented the money?

Held by the Chancery Division

  • C was entitled to trace and recover the mistaken payment on the grounds that, under English law, the payer of a mistaken payment retained an equitable property in it and the payee has the fiduciary duty to respect that continuing proprietary interest.
  • A similar equitable interest exists under the laws of New York State.
  • The money held by D at the commencement of the winding up order did not belong to D beneficially and never formed part of its property.

Goulding J.

  • In my opinion, the evidence I have heard correctly represents the law of the State of New York and is in accordance with the general principles of equity applied in England, and I will follow them in absence of direct English authority.
  • It has been contested that tracing cannot be allowed without an initial fiduciary duty. This is incorrect; as in Sinclair v Brougham [1914] A.C. 398, the payment into the wrong hands gives rise to a fiduciary relationship, and this transaction does not need to be consensually agreed to by both parties.
  • “Thus, in belief that the point is not expressly covered by English authority and that Re Diplock does not conclude it by necessary implication, I hold that the equitable remedy of tracing is in principle available, on the ground of continuing proprietary interest, to a party who has paid money under a mistake of fact. On that prime question, I see no relevant difference between the law of England and the law of New York and there is no conflict of laws to be resolved” [120A].
  • “It is important, however, to make clear the limits of what I have just said. I do not say, and I do not imply that on the facts and figures of any particular case the courts of England and of New York, when tracing in equity a sum paid by mistake, will necessarily apply the same tracing rules or arrive at the same final result. For example, in Re Berry (1906) 147 Fed. 208, the American court applied the rule in Re Hallett’s Estate (1880) 13 Ch.D. 696 , for the purpose of identifying the claimant’s money in the bankrupt’s bank account” [120B].